Qatar Crisis Hard to Resolve

This is more than a diplomatic row among GCC members. Perhaps emboldened by President Trump’s visit, Saudi Arabia and its allies have declared if you are with Iran (or specific radical Sunni groups), you are against us. This effort to delineate sides in the region cannot be easily reversed without substantial outside pressure. Expect a geopolitical premium to creep into energy prices as this dispute continues.

Weekend in the Gulf Changes Little

Notwithstanding the pageantry of the U.S. President visiting Saudi Arabia and the enthusiasm of young Iranians hailing their moderate President’s reelection, little changed in terms of the region’s political stability, the battle with ISIS or oil policy this weekend. The clearest signal from the weekend was the public and forceful assertion that the U.S. has allied itself with the Saudis versus Iran, which can only have stoked the age-old rivalry. This should not impact OPEC dealings this week as Iran’s production is near a top, but it is likely to have repercussions down the road when (and if) Iran’s productive capacity rises.

Has OPEC Risen to the Challenge?

The decision by Saudi Arabia, Russia and ostensibly the rest of OPEC to extend the production cut through the first quarter of 2018 is not a surprise, except for the addition of the first quarter of 2018. Extending through early 2018 signals that the producers understand the magnitude of the challenge. Whether they rise to the challenge depends on their success this summer. OPEC needs to do as much as possible now to temper the surplus coming in the first quarter.

French Election is Victory for Europe

In the realm of international relations and U.S. foreign policy, an integrated Europe allied to the U.S. is seen as a plus for concerted action to counteract instability in regions such as the Middle East, North Africa and even the Balkans. The election of independent, centrist, Emmanuel Macron, to the French Presidency over the weekend was a clear victory for Integrated Europe as Macron ran on a pro-Europe platform.

Tensions with North Korea Becoming Critical Threat to Oil Markets

The strategic situation between the United States and North Korea is approaching an inflection point. The
U.S. decision of whether to attack North Korea before it develops an intercontinental strike rides on its belief
in the strength of mutual nuclear deterrence. But, North Korea is seeking to close what they perceive as an
almost seventy-year-old window of vulnerability. The U.S. may decide (with the encouragement of its allies)
to act before that window closes. The possibility of military conflict is growing and will materially impact key
oil consumers, South Korea and Japan, among others.

Stalemate Will Limit Libyan Production

Libya will not solve its own problems in 2017. And although international actors, including the US and Russia, have military presence in the country, their influence will not the tip scales toward national resolution or in favor of any faction. Continued violence and the undermining of the National Oil Company will keep oil production fluctuating between 400,000 b/d and 800,000 b/d for the foreseeable future.

Trump and a New Cold War in the Middle East

Trump Administration statements after the missile strike on Syria indicated a broad change in policy regarding the future of the Assad regime in Syria. Whether this is followed by other military, economic, or political actions remains to be seen. But, we have entered a new era in the Syrian civil war, which signals a subtle but important change in the new Cold War in the Middle East.

U.S. Shale is Back and the Crude Migration to the East Resumes

At the end of 2014, Saudi Arabia, with its OPEC partners, opted to lift crude oil production and
pursue greater market share in the face of rising U.S. shale production and the expected removal of
sanctions on Iran. By the end of 2015, crude oil prices had tumbled under $40, Saudi and Iraqi
production had risen by 1.5 million b/d, a nuclear deal was indeed struck, and Iran was gearing up to
raise exports. U.S. shale producers had worked furiously to cut costs and stay in business, but their
production had finally crested and was declining. Ironically, in this market of low oil prices and
falling U.S. production, the U.S. government lifted the ban on crude oil exports.