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Diverse notions of Energy Security in a Multi-polar World

Dr. Sunod Jacob

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The concept of energy security has been at the front and centre of many important changes in international relations and international law since the 1970s. However, in the recent past, the speed of its evolution and the fleshing out of its scope and content has been quite dramatic. During this period, there has been remarkable flux in the patterns of global trading in energy products. In 2008–09, several key trends started to develop in the energy sector, triggered by the influence  of  two  new,  very  strong  factors:  the  global  financial  and  economic  crisis  and  the shale revolution in gas and oil production. The Energy Policy of the Trump Administration stands in contrast with that of the Obama Administration. The America First Energy Plan stated, inter alia, that “The Trump Administration is committed to energy policies that lower costs for hardworking Americans and maximize the use of American resources, freeing us from dependence on foreign oil.” The Plan called for removing the Climate Action Plan and the Waters of the US rule, embracing the shale oil and gas revolution, commitment to clean coal technology, and to reviving America’s coal industry, boosting domestic energy production, achieving energy independence from the OPEC cartel and any nations hostile to US interests, and responsible stewardship of the environment. Two years later, a White House Fact sheet stated that under President Trump, the US had been establishing energy dominance, abolishing the war on energy and advancing American energy. Specifically, it was pointed out that United States had become, amongst others,  (a) the largest crude oil producer in the world, (b) a net natural gas exporter for the first time since 1957 including exports of LNG to the EU at an all-time high in March 2019 , (c) crude oil exports nearly doubled in 2018, reaching a record average of 2 million barrels a day, (d) coal exports reached their highest level in five years in 2018 and (e) withdrew from the Paris Climate Agreement and got “rid of costly Obama-era regulations like the Stream Protection Rule and the Clean Power Plan.” The George W Bush legacy was closer to the Obama approach. According to a Fact sheet on the same, President Bush had taken a reasoned, balanced approach to the serious challenges of energy security and climate change.

According to its White Paper of 2012 titled, “China’s Energy Policy” in 2011, the output of primary energy equaled 3.18 billion tons of standard coal, ranking first in the world. At present, nearly 50 percent of China’s total energy imports is from the Middle East. For the foreseeable future security of energy supplies will continue to remain a policy priority for Beijing. Under Xi Jinping, China has turned more ambitious in respect of its energy mix with considerable emphasis on new energy including through the Made in China 2025 policy and the Belt and Road connectivity initiative. It may be recalled that the ten year Made in China 2025 plan on promoting manufacturing was announced in May 2015 and specifically included energy saving cars and new energy cars among the ten key sectors. According to a MERICS Database made public in July 2019, two thirds of Chinese spending on completed BRI projects went into the energy sector, and already amounted to more than USD 50 billion. Renewable energy power-plants led the pack of completed, Chinese-funded energy projects with a total investment volume in excess of USD 20 billion. According to the 2019 Annual Report of the US-China Economic and Security Review Commission, China  has  quickly  built  up  advanced  production  capacity  in  lithium-ion  batteries  and  established  control  over  a  substantial  portion  of  the  global  supply  chain,  exposing  the  United  States  to  potential  shortages  in  critical  materials,  battery  components,  and  batteries. Further, China is positioning itself to become a leader in nuclear  power  through  cultivating  future  nuclear  export  markets along the Belt and Road, particularly in sub-Saharan Africa,  and  attracting  advanced  nuclear  reactor  designers  to  build  prototypes  in  China. Finally, reference may also be made to China’s efforts at the Arctic region. Since 1999, China has organized a number of scientific expeditions in the Arctic, with its research vessel Xue Long (Snow Dragon) as the platform. In 2004, it built the Arctic Yellow River Station in Ny Alesund in the Spitsbergen Archipelago and by the end of 2017, China had carried out eight scientific expeditions in the Arctic Ocean, and conducted research for 14 years with the Yellow River Station as the base.

The position of the OPEC has also evolved. In a keynote address delivered by HE Abdalla Salem El-Badri, OPEC Secretary General, at the Chatham House Conference entitled “Middle East Energy 2008″ – Risk and Responsibility: The New Realities of Energy Supply – London, UK, 4 February 2008, he focused on the following characteristics: Energy security should be reciprocal;  universal, applying to rich and poor nations alike; focus on providing all consumers with modern energy services; apply to the entire supply chain; cover all foreseeable time-horizons; allow for the development and deployment of new technologies in a sustainable, economic and environmentally-sound manner; and benefit from enhanced dialogue and cooperation among stakeholders. A decade later, it is instructive to glance through the World Oil Outlook report 2019 launched on 5 November 2019 at Vienna, Austria. It states, inter alia, that demand for OPEC liquids is projected to increase to around 44.4 mb/d in 2040, up from 36.6 mb/d in 2018; global crude oil and condensate trade is estimated to remain relatively static at around 38 mb/d between 2018 and 2025, before increasing to around 42 mb/d by 2040; in the period to 2040, the required global oil sector investment is estimated at $10.6 trillion; and energy poverty remains a major global challenge, with almost one billion people still without access to electricity and three billion lacking access to clean fuels for cooking. The Aramco’s IPO is being watched with interest including for what it meant for energy security calculations especially of the Kingdom of Saudi Arabia. The testy relationship between the US analysts and the OPEC markets remains even as the promise of shale gas fades away.

The Indian understanding of energy security encompasses four aspects, namely (i) availability of energy for all citizens, (ii) lifeline energy, (iii) supply that meets effective demand, and (iv) ability to withstand shocks and disruptions. The landmark India-US nuclear deal was intended to address the problem of energy deficit that had emerged as one of the primary constraints on accelerating India’s growth rate. According to a fact sheet of the Ministry of External Affairs of India of 27 June 2007, “Presently, only 3% of India’s energy needs are met from the nuclear sources. India plans to produce 20,000 MWe from the nuclear sector by 2020, an increase from the current 3,700 Mwe.” Full civil nuclear energy cooperation with the US was also expected to help India achieve energy security. Most recently, in his speech at 16th International Energy Forum Ministerial Meeting in New Delhi in early 2019, Indian Prime Minister Narendra Modi said, “Given global uncertainties, India also needs energy security. My vision for India’s energy future has 4 pillars– energy access, energy efficiency, energy sustainability and energy security….the launch of the International Solar Alliance is a step towards fulfilling this commitment.” India had reaffirmed its commitment to the Paris Agreement and achieved some successes through its citizen participation on certain aspects of the fight against pollution. Recent news reports indicate that the Government of India is in the process of formulating a new energy policy. The highly reputed National Geographic assessed in September 2019 that “India has emerged as a global leader in renewable energy, and in fact it is investing more in them than it is in fossil fuels

The IEA defines energy security as the uninterrupted availability of energy sources at an affordable price. At the mid 2019 G20 Osaka Summit, the leaders acknowledged “…the importance of global energy security as one of the guiding principles for the transformation of energy systems, including resilience, safety and development of infrastructure and undisrupted flow of energy from various sources, suppliers, and routes.” They also recognized the value of international cooperation on a wide range of energy-related issues including energy access, affordability and energy efficiency, and energy storage. The WTO has in a limited way addressed some aspects of energy security. In the WTO Panel report of September 2018 on European Union and its Member States — Certain Measures Relating to the Energy Sector, where the complainant was the Russian Federation, one of the points of contention was regarding the third-country certification measure in the national implementing laws of Croatia, Hungary and Lithuania. Both parties agreed that the measure, de jure, violates the national treatment obligation in Article XVII of the GATS by requiring a security of energy supply assessment prior to the certification of third-country transmission system operators, but not domestic ones. Controlling the South China Sea has major implications for energy security in that region. The strategic context affecting upstream development in the South China Sea is a rising China that is increasingly able and willing to assertively pursue its perceived sovereign rights to oil and gas resources. The decision of the Permanent Court of Arbitration in the case brought by The Philippines has relevance in this regard. The centrality of ASEAN countries in the 21st century Maritime Silk Road initiative of China is testimony to this. How the regional grouping handles the on-going negotiations on the Code of Conduct for the SCS is going to determine the safety of sea lanes in this busy and sensitive area. The imperative for energy security in such a vulnerable strategic region as the Asia-Pacific is paramount for global stability and development. In this regard, the 2007 non-binding Declaration on East Asian energy security signed by the leaders of the member countries of the Association of Southeast Asian Nations (ASEAN), Australia, People’s Republic of China, Republic of India, Japan, Republic of Korea and New Zealand, on the occasion of the Second East Asia Summit on 15 January 2007 in Cebu, Philippines called for: cleaner and lower emissions technologies, use of biofuels,  improving efficiency and conservation, reducing the costs of renewable and alternate energy sources through innovative financing schemes,  intensifying the search for new and renewable energy resources and technologies, stable energy supply through investments in regional energy infrastructure, recycling of oil revenues and profits for equity investments, strategic fuel stockpiling, clean use of coal and development of clean coal technologies and international environmental cooperation, regional or bilateral cooperation & assisting less developed countries in enhancing national capacity building.

In 2017, the EU produced around 45 % of its own energy, while 55 % was imported; the energy mix in the EU, was mainly made up by five different sources: petroleum products (including crude oil) (36%), natural gas (23%), solid fossil fuels (15%), renewable energy (14%) and nuclear energy (12%). The main imported energy product was petroleum products (including crude oil, which is the main component), accounting for almost two thirds of energy imports into the EU, followed by gas (26 %) and solid fossil fuels (8 %); almost two thirds of the extra-EU’s crude oil imports came from Russia (30 %), Norway (11 %), Iraq (8 %), Kazakhstan and Saudi Arabia (both 7 %) & more than three quarters of the EU’s imports of natural gas came from Russia (40 %), Norway (26 %) and Algeria (11 %), while almost three quarters of solid fuel (mostly coal) imports originated from Russia (39 %), Colombia and United States (17 % each). Of all the international players, the EU has been the most progressive on climate change issues. Recently, the European Investment Bank announced that it would stop funding fossil fuel projects by the end of 2021. On its part, the European Parliament has urged all EU countries to commit to net zero GHG emissions by 2050. The Commission is expected to present in 2020 a comprehensive plan to reduce emissions towards 55% in a reasonable way by 2030.

In conclusion, it is observed that the period from 2000 to 2019 has been transformational in multiple ways in respect of the evolution of the emphasis between renewables and non-renewables in the energy mix reflective of domestic green politics the world over, especially in Asia. The dissonance amidst the principal actors of the energy architecture can be inferred from transition from Balance to Dominance in the case of US; Emphasis on Environment in the case of EU; taking the lead in global Supply of Lithium and Nuclear in the case of PRC, Four Pillars of Energy Future in the case of India, Reciprocal Dimension of Energy Security in the case of OPEC and the myriad of perspectives from Plurilateral and Multilateral Institutions. With the passage of time, since the energy crisis of 1970s, reconciliation of how major players view energy security warrants greater attention as we move ahead.

Dr. Sunod Jacob The Peninsula Foundation Former Legal Advisor, ICRC Former Associate Professor of Law, GD Goenka University The author can be reached at sunod.jacob[at]thepeninsula.org.in

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How U.S.-China trade deal is going to impact Iranian oil exports?

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U.S., and China are going to sign a trade deal, which is expected to ease the tensions between the two economic rivals and push the global economy out of recession and bring markets back to life.

The deal, which is labeled as the “Phase 1 trade deal”, is going to be signed by U.S. President Donald Trump and China’s Vice Premier Liu He, at the White House.

Despite the undeniable positive impact of the deal on the global markets, the consequences of this deal for the Iranian oil market could be a little complicated. Since, on one side, the increase in oil prices as the result of the trade deal would benefit the Iranian oil industry like all others, but on the other side, it could force China to take some reassuring actions in order to show its determination for ending the trade war.

That means, under U.S. pressures, and to cement the agreement with the Americans, China could probably cut or even end its oil imports from Iran. 

The U.S.-China-Iran triangle

Tensions between the U.S. and Iran have been escalating in recent weeks after the U.S. assassinated the top Iranian General Qassem Soleimani in an airstrike, and Iran answered with an attack on U.S. military bases in Iraq. 

Following Iran’s revenge, Washington imposed new sanctions on the Iranian metal sector and some of the country’s senior officials.

The Trump administration has also intensified the pressure on Iranian allies, like China, for reducing their economic transactions with the Islamic republic and follow the Americans’ lead in isolating Iran.

China, however, so far, has been resisting such pressures and despite the U.S. threats and imposing penalties on Chinese tanker companies dealing with Iranian oil, the country has continued to import oil from the Islamic Republic.

Now with the U.S. and China on the verge of signing the significant agreement, the Trump administration is using this deal as leverage to make the Chinese side bend to their wills in cutting ties with Iran.

Earlier on Sunday, U.S. Secretary of the Treasury, Steven Mnuchin, told Fox News that “The United States is working closely with China to have it cut off altogether imports of Iranian crude oil.”

Possible deal outcomes

As I mentioned earlier, despite the U.S. sanctions, China still remains Iran’s top oil customer, and the idea of the Asian country cutting ties with Iran would be a huge blow to the Iranian oil industry and economy in general.

However, despite all the hype around the trade deal between the U.S. and China, many believe that this deal is just the first step toward a possible truce and the two sides have a long way ahead for reaching a complete alliance.

As reported by Reuters, Myron Brilliant, the U.S. Chamber of Commerce’s Executive Vice President said on Monday that the Phase 1 trade deal “stops the bleeding” but does not end the trade war.

So it is very unlikely that China would lose one of its biggest trade partners in the Middle East region over a deal which is not even very promising.

Considering the fact that, so far, Washington has done everything in its power to cut off Iran’s oil exports to zero, but it hasn’t succeeded in this regard, under the current circumstances too, it is unlikely that its pressure on China will lead to a disruption of the country’s oil exports.

Therefore, the trade agreement could also have a bright side for the Iranian oil industry. That is to say, a proper trade deal could benefit the global economy and leads it out of recession and thereby alleviate the dark prospect of oil demand. 

The trade deal could act as a stimulus for demand growth and, by removing the biggest obstacle to the rising of oil prices over the past year, push the oil prices to higher levels, and consequently boost Iran’s oil revenues. 

From our partner Tehran Times

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Energy

TANAP Is Inaugurated: What Southern Gas Corridor Promises To The Europe And Stakeholders?

Aliyar Azimov

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Ever since the creation of mankind, human beings have always been in search of energy. Several conflicts and wars happened over energy resources for many centuries. Depletion of energy resources is the most important challenge that the major powers are struggling for. Energy policy is a big issue for almost any country in the world which is dependent on external resources. Energy consumption in the EU is more than any other region in the world while being poor in terms of energy sources. Implementation of renewable alternative energy projects requires proper and expensive infrastructure, which not all of the states are capable of it in an economic context. Therefore, alternatives and new routes in the traditional energy sources are vital priorities for the EU.

Since the last gas dispute with Russia, the EU has started to build effective policies to bring energy sources safely to the internal market by efficient transportation. Thus, the EU is trying to reduce energy dependency level on Russia by using geographical proximity advantage to the energy centres. In this sense, the Caspian region offers more stable and secured energy flow considering the fact that the Southern Gas Corridor (SGC) project is designed for this purpose between the region and the EU. Therefore, the EU is providing substantial support for the reconstruction and development of the infrastructure of gas pipelines, which passes from transit countries such as Georgia and Turkey and brings energy resources to Europe. There are several important reasons that the EU took into consideration while implementing SGC. Firstly, the 2006 and 2009 gas dispute showed that Ukraine is not a reliable transit country anymore. Instead, Turkey can be the more optimal alternative route as it has a desire to become a regional power. Secondly, Azerbaijan offers more stable and secured energy supply by using its foreign energy relations experience from 1994. Also, Azerbaijan is more interested in to cooperate with the West in energy relations rather than sticking into one direction and using intermediary actors. Because having reliable and effective transportation networks for easy access to the world market is essential for economic development and security of Azerbaijan due to its geographical location as a landlocked state. Thirdly and most important factor is security. In the modern era, the prior direction of the states’ foreign policy is the solution of the security problem. Eastern part of the EU, especially CEE countries, are highly dependent on Russian gas, which makes them go under both political and economic pressures from time to time. Therefore, the principal direction of the EU is to ensure energy security as well as the national security of the Member States by diversifying their economic trade partners. Energy security can be described either additional category of the national security or a category which is based on the synthesis of economic and political security. Thus, as the energy security has both economic and political implications, the EU makes great efforts to protect its borders from any threat by addressing to the issue in two ways; international aspect which is targeted to provide reliable, cost-effective and low-risk energy imports to the domestic warehouses, and local aspect which is intended to establish uninterrupted supply of energy with affordable price for the population and industrial workers (consumers).

TANAP AND AZERBAIJAN-EU ENERGY RELATIONS

In 2011 Azerbaijan and the EU signed a joint declaration on the Southern Gas Corridor. SGC was more an optimal and promising version of the Nabucco pipeline project. The direction of the project was also crucial for Europe because the Trans Adriatic Pipeline (TAP) and Trans-Anatolian gas pipeline (TANAP) in the SGC will deliver Azerbaijani gas to the South of Europe. Thus, this pipeline both will meet the gas needs of these regions and diminish Europe’s energy dependence on Russia slightly. Unlike Nabucco, the SGC is a more promising and strategic start to bring gas resources from the Caspian Sea, Middle East, and Central Asia. The primary purpose of this project is to diversify energy routes by using completely new and alternative directions. The geopolitical significance of the TAP project is quite high in terms of diversifying energy sources. Although the main direction of the TAP project is Italy and Greece at initial stage, the pipeline can supply Azerbaijani gas to several European countries, such as Austria, Central Europe region, Bulgaria, Balkan countries, Southern Croatia, Albania, Montenegro, Bosnia and Herzegovina as well as United Kingdom, Germany, France and Switzerland.

The project was announced on November 17 2011 at the Third Black Sea Energy and Economic Forum held in Istanbul and following this a memorandum of understanding was signed between Azerbaijan and Turkey on December 26 2011. The opening ceremony of TANAP was held on November 30, 2019, in Ipsala of Turkey’s Edirne province. Ipsala is located near the Turkey-Greece border, and TANAP is connected to the TAP, which will bring Azerbaijani gas to European region directly. TANAP is the largest and central segment of SGC and has strategic importance for both Azerbaijan and Turkey. First and foremost, Azerbaijan will be able to transfer its natural resources directly into the European market for the first time in history. Second, by joining this project, Turkey reaffirms its position in the regional security by becoming a reliable regional energy hub. Third, European states support the energy supply from the Caspian Sea to the European market and by providing economic and political support. Thus, SGC is a multinational natural gas pipeline supported by the European Commission and financed by the World Bank, European Bank for Reconstruction and Development, and Asian Infrastructure Investment Bank. Despite the US has not invested and will not get any commercial benefit from the project, Washington supports TANAP due to its promotion of diversification of energy supplies.

The EU is making significant efforts to diversify its energy supply and deliver Caspian gas to Europe without Russian intervention. On the other hand, procedures between the EU and Azerbaijan show that Azerbaijan is interested in independent cooperation with the EU. Although the Nabucco project failed, with the choice of TAP and TANAP projects, Azerbaijan proved its pragmatic partnership and its aim to increase revenues. At the same time, from its independence, the absence of internal conflicts in Azerbaijan, continuous promotion of peace, active involvement in international missions resulted in a robust, durable and stable economy and political system. In fact,as long as Azerbaijan is interested in delivering energy to the West by supporting transit projects, the EU does not face any difficulties in the region.

In order to describe the big picture, as presented by the EU Commission prior to the global financial crisis and alternative energy routes, it is essential to note that volume and cost are not the only elements at stake in the SGC.It has crucial geopolitical consequences. Building East-West transportation corridor passing through South Caucasus to connect Europe to Asia offers to establish new infrastructures, railways, highways and pipelines, new job opportunities, security as well as different transport facilities. This corridor sits right at the intersection of both politics and economics. In terms of economics, it creates new chances for the regional countries to connect to global markets and to stimulate economic development by fostering integration with the global economy. On the other hand, politically, it enhances the strength of sovereignty of both sides by opening new supply routes. Because the creation of transit corridors requires diversified access to the international arena considering the fact that being dependent on a single route may emerge potential blockade by the exporter.

Azerbaijan is one of the main actors of this corridor and can supply gas to the European market by improving European energy security and without creating additional geopolitical tension. Azerbaijan has experienced energy trade with Europe by implementing the BTC pipeline. Alternative supplies remain its significance by building affordable and relatively more feasible projects with necessary investments. Azerbaijan, in this picture, emerges as the most reliable supplier and trade partner with a clear understanding of supply, demand and transit routes. Therefore, the initiative of SGC, TANAP and TAP together with the EU aims to hinder Russia’s dominance in the European gas market. To put it briefly; SGC offers more benefits rather than its predecessors due to several reasons:

Energy resources in the Caspian Basin are important for the EU, and the geographical location of Azerbaijan makes it ideal and more optimal point for the transportation of these resources;

SGC is not long-distance route as Nabucco, therefore, it is affordable in terms of costs;

SGC will create competitive prices in the energy market, especially for Southern Europe at the first stage, and later for CEE countries;

SGC will strengthen Turkey’s position as a transit country, and enhance the EU-Azerbaijan relations.

In the future, it is planned to give life to the Trans-Caspian energy pipeline by connecting to the SGC. In this context, the legal status of the Caspian Sea defines the strategies of the five Caspian littoral states. Convention on the Legal Status of the Caspian Sea gave a ground that the other countries cannot intervene in the projects unless they are official partners. It means that by signing this convention, the five Caspian littoral states can build their energy strategies and policies independently. Thus, if the Trans-Caspian project is to be implemented in the future, it will be able to transport gas to Europe from other regions. The central part of this route will be the Southern Gas Corridor. Thus, Azerbaijan will also play a role in the region as a bridge to connect Europe with Asia, becoming a transit country. This means more investment, stronger infrastructure and well-built East-West relations.

TURKEY IS THE ‘KEY FOR THE ENERGY’

Turkey has limited natural resources which makes it dependent on external energy sources. As energy demand and dependency rate on external sources is increasing, energy issues have increased their weight by becoming the determinant of the dynamic of Turkish foreign policy gradually. The main objective of Turkey’s energy policy is to provide energy promptly to ensure economic growth as well as sufficient, reliable, competitive prices. Turkey imports its 98% energy demand from its energy-rich neighbours such as Russia, Iran, Azerbaijan thanks to its geographical location. On the other hand, Turkey is the vast market for these exporter countries. Therefore, the TANAP project has specific importance and means more than an energy project for Turkey. TANAP will not only diversify energy routes but also will contribute to the security of supply. Turkey considers this pipeline as an important project with its economic dimension because it will lead to the development of economic and political relations between Turkey and regional states. TANAP will improve the effectiveness of Turkey in the region as well as its position in the global energy projects. Another critical point is that Turkey aims to become an energy centre as Austrian Baumgarten if manages to involve as much as energy directions. This is important for the EU as well because by turning into an energy hub, Turkey can ensure Europe’s energy security and provide securitization of energy supply and formation of a market structure in which gas competes gas. Since TANAP offers regional prosperity and security, Turkey takes a critical role in every point of the value chain extending from producer to final consumer.

Since the dissolution of USSR, the Azerbaijan-Turkey axis has brought positive trends both in the political and economic fields. For instance, despite several issues and obstacles at the end of XX century, Azerbaijan and Turkey managed to implement the Baku-Tbilisi-Ceyhan (oil pipeline), Baku-Tbilisi-Erzurum (gas pipeline), and Baku-Tbilisi-Kars (railway) projects and strengthen their geopolitical benefits in the world arena. Following this, TANAP project Turkey will gain a strategic momentum against Russia in the context of ensuring energy flow, especially to Europe in the near future.

In conclusion, since the restoration of state independence in 1991, the Republic of Azerbaijan has defined the integration and expansion of cooperation with the EU as one of the strategic directions of foreign policy. The economic integration interests of Azerbaijan towards Europe are shaped by geopolitical and geoeconomic position and socio-economic development of the country.The SGC is particularly vital in terms of EU’s energy security. The interest of the European countries in this project results in the construction of new infrastructure for the secure supply of energy resources from the Caspian region to Europe.Additionally, TAP and TANAP will have a positive impact on Europe’s as well as Turkey’s energy economy, while diversifying energy routes because these projects will create competitive prices in energy markets. Also, SGC is considered to be profitable for both the participating countries and companies directly involved in its implementation.

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Oil market outlook 2020: It stands between Geopolitics and Geoeconomics

Shan Saeed

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Global energy market is shivering. I saw this coming since last year and I’ve been sharing about this in my interviews in last few months.  Iran and USA escalation would be bad for the global economic outlook. This is a very precarious time for the global markets. The need of the hour is diplomatic brinkmanship which lacks at the moment. Engagement strategy between Iran and USA looks a far fetched dream now.

And if we get oil prices over $100 a barrel, kiss the global economy and equity markets good bye. Global economy will lead into deeper recession Tangible assets like Real estate, gold and silver shine in tempestuous times.

Geopolitical Risk Is Making Impact Across All Asset Classes

1. Geopolitics is always derived from grand strategic objective which is based on the 3/4 variables.

USA Grand  Strategic Objectives are

– Containment of China and Russia

– Control fuel based assets

– Control trade and sea routes

 Why

China is going to invest $400 billion in Iran oil and gas sector. If war breaks out, CPEC would suffer and impacts china’s global trade

– Control Indian Ocean and few important straits

 Markets Are Nervous

If the markets get jittery, USA is to blame for the whole mess. Oil market is already in the BACKWARDATION PHASE I.e (spot price is higher than future price). This is an ominous signal for the market players. Two geo strategic risk happened in less than 4 months.

1. Sept 14 in Aramco field, price went up 14% in one day 2. Jan 3 in Drone attack, price increased by 5.2% in less than 21 hours

History Of Oil Market: Outlier In Prices Possible

The question everyone is asking: what if war starts between  Iran and USA, would we see 2008 levels when oil was trading at $147.17 / barrel on July 11-2008?. Premature to say but tensions are running very high and can turn into major conflict.  Oil touching 3 digits cannot be ruled out according to market experts based in the energy market.

Oil Market Outlook -2020: Bedlam Is The Only Word

Oil market will remain precarious and in the mainstream media news reporting due to possible production cuts / geopolitical risk are coming into the energy market. I foresee oil prices to be touching around $62 to $90/barrel in 2020.

Premises are simple

1. Dollar to stay weaker

2. Geo political risk

3. Production cuts tantamount to 1-2 million barrel per day

4. Bankruptcies looming.

Scenarios—-Deep Analysis

I have structured two possible scenarios taking into account few variables:

Modeling approach

Price history,

Geography,

Economics,

Probability of events,

Statistics of energy market

Market  intelligence report and

Financial implication

SITUATION 1

3 days war between Iran and USA

Price range: 70 to 95

SITUATION 2

7 days or 1 month conflict between the two countries

Price range: $90 to $150/ barrel

In case of war, oil be trading at a premium ranging from $15 to $50/ barrel. Global macroeconomic stability goes into jeopardy. Tough times ahead of us.

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