If protesters, now or in the future, are looking to bring additional pressure onto the ruling elites and the security forces, they will have to either coopt some segment of both or target the sources of their power and revenue, including the oil sector. It seems a long fuse has been lit.
Over the last few days, Saudi Crown Prince, Mohammad bin Salman, has arrested or detained individuals
under the charge of corruption. Yet, these efforts are intended to consolidate his power before he becomes
King. Perhaps this consolidation is essential to the successful execution of his Vision 2030, but it does fly in
the face of projecting a transparent, increasingly liberal economy worthy of foreign investment.
King Salman is the last of the Sudairi Seven to rule Saudi Arabia before the next generation (grandsons of King Abdulaziz ibn Saud) takes power. If Crown Prince, Mohammad bin Salman, ascends the throne in the next one to two years, he will rule – absent medical issues or political upheaval – for decades. This will include the period when judgment will be rendered on his Vision 2030 for diversification of the Saudi economy. The oil market’s focus on the Saudi Aramco IPO and its perceived connection to Saudi oil policy should be seen within the context of larger issues related to internal stability.
On Thursday, President Trump will make a speech on Iran in which he is expected to not certify that Iran is in compliance with the Nuclear Deal, as required every 90 days. This will give the Congress 60 days to take up the issue of putting sanctions back in place. At this juncture, a return to the status quo ante “the Deal” is impossible given the positions of the other P5+1 countries. But, Congress may take other steps to turn up the heat on Iran.
The autonomous Kurdish region of Iraq voted for independence last week in a resounding – but non-binding – referendum. Baghdad has dismissed the vote. Turkey and Iran, with large Kurdish populations themselves, have threatened a blockade. Turkey’s threat to shut the Kirkuk-Ceyhan crude oil pipeline puts Kurdistan’s nearly 600,000 b/d of crude exports at risk. Ongoing tensions have already encouraged a temporary run-up in Brent prices, and will keep a small geopolitical premium on the price of crude.
Even as President Trump continues to oppose the Nuclear deal with Iran, we expect him to certify the Nuclear Accord on October 15th (i.e., keep it as is) while increasing pressure on Iran in other ways. But certification comes up every 90 days, so this will be an ongoing issue.
Current tensions between North Korea and the international community, but especially the U.S., South Korea and China are bound to continue and threaten military conflict that could escalate to a previously unthinkable outcome. While oil and gas trade with North Korea is quite small, any threat of military action in the region will impact shipping and lift the price of waterborne goods.
This morning the Trump Administration indicated that U.S. policy towards North Korea is moving from “strategic patience” to “strategic accountability”. That summary of the current situation seems far less bellicose than recent statements by either side. Moreover, U.S. policy is focused on encouraging China to step in more proactively, which gives the impression that U.S. direct action is still arm’s length away. Yet, as discussed below, misperceptions on both sides could quickly lead either side to escalate from statements to action.
Saudi denial of oil tankers entering a Yemeni port brought the Yemeni conflict to the fore in the oil sector. While the oil implications are negligible, the movement of the conflict towards the sea raises the potential for an accidental incident leading to direct conflict between the Saudi coalition and Iran, and the U.S.
The Syrian ceasefire agreed by Russia and the U.S. could lead to a stabilization of some portions of Syria and reduce the chances of direct clashes between Russian and American aircraft, but it does not appear that enough of the important factions are currently satisfied with their positions to lay the groundwork for a larger, negotiated settlement.
Oil & Gas Journal June 21, 2017
Elisabeth Murphy of ESAI said, “Although the pace of growth is expected to slow next year, US shale production is forecast to be about 500,000 b/d higher in 2018 than 2017, still very impressive growth.”
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.
OPEC is very much alive, and has just extended its production restraint through the rest of 2017 and the
first quarter of 2018, improving the outlook for 2017 and maybe even 2018.
World Pipelines May 24, 2017
Elisabeth Murphy, analyst at ESAI Energy, points out that “until oil prices get closer to US$60 producers will continue to target the Bakken core where well performance is very high.
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.