Oil & Energy
Conflict In Gaza Threatens US Middle East Strategy
The starting point for all sound intelligence analysis of a particular action is to identify who gains from it and what it is that they gain. As the new titfortat conflict between Israel and Palestine continues to escalate such analysis reveals the following: overall Palestine will gain nothing except sympathy from already sympathetic supporters, Israel will gain nothing although it may bolster the flagging domestic support for Prime Minister Benjamin Netanyahu, but those countries that want to destroy the nascent U.S. Israeli led ‘relationship normalisation’ strategy stand to gain precisely what they want.
Top of this list of beneficiaries is obviously Iran, which has the motive, means, and opportunity to stoke the ever simmering conflict between Palestine and Israel to such a point that Arab states that have long seen the Palestine conflict as a reason not to join the new U.S. Israeli led initiative (most notably, Saudi Arabia and its King Salman) have been vindicated. Fracturing the relationship between the U.S., Israel and those countries that have already signed up to the normalisation deals notably the UAE and Bahrain is also a possibility as evidenced last week.
Up until just two weeks ago, for example, the UAE’s key sovereign wealth vehicle – Mubadala – was intent on formally ratifying an in-principle agreement to buy from Israel’s Delek Drilling its 22 percent stake in the Tamar natural gas field operated by U.S. oil and gas giant, Chevron. Given the size of the deal – at least US$1.1 billion – and the fact that each of the countries behind the U.S.-Israel-UAE normalisation deal signed last August are significantly involved in it the deal was rightly regarded as being one of the most significant material developments since Israel and the UAE agreed to normalise ties last year.
For Israel, over and above the financial value of the deal is the strategic significance of the Tamar gas field that lies in the eastern mediterranean as it is one of the country’s primary energy sources, able to produce 11 billion cubic metres of gas each year. This is sufficient not just to cover much of the Israeli gas energy market but also to lay the basis for the strategically important roll out of gas exports to Egypt and Jordan. Underlining this, last month saw a comment from Delek Drilling’s chief executive officer, Yossi Abu, that the deal potentially marked: “A strategic alignment in the Middle East, whereby natural gas becomes a source of collaboration in the region.” The deal was to have been finalised this month, which in turn would have opened up the way for further co-operation between Mubadala and Delek Drilling in the nearby – and even larger – Leviathan gas field. Last week, though, Tamar field operator Chevron shut down the offshore Tamar gas platform Israel amid an escalation of violence between Israel and Palestine.
Should this trend of increasing violence between Palestine and Israel continue then this may not be the only commercial deal under threat as the very basis of the relationship normalisation strategy between Israel and Arab States comes into question. This deal between Israel and the UAE announced on 13 August came at around the same time as Israel’s Netanyahu announced that he was suspending plans to annex more areas of the West Bank that it seized during the 1967 Six Dar War. At that time, the UAE had two principal aims in signing such an agreement. One was that it wanted to put itself firmly in the U.S.’s most-favoured allies group for receiving future business and financing deals, as it had suffered a big hit from the Saudi-led oil price war that had just ended. The other was that it wanted to be included in the U.S. Israel intelligence and security network to protect itself from the growing influence of Iran. For Iran, the potential danger that this new U.S. Israel power axis posed is huge. Partly this is a result of increased security threats (via a massively expanded Israeli-led intelligence operation) coming from the UAE in its south and south-western provinces and partly this is due to the likelihood that when the current ruler leader of its deadliest regional enemy, Saudi Arabia dies (and King Salman is in very poor health), his successor, Crown Prince Mohammed bin Salman (MbS), may join the relationship normalisation grouping.
Although King Salman told the organisation of Islamic Cooperation just last year that the Palestinian cause remained a core issue and that the kingdom “refuses any measures that touch the historical and legal position of East Jerusalem,” MbS is believed to be far more sympathetic to the agreement. Even Saudi’s Foreign Minister, Prince Faisal bin Farhan, cautiously welcomed the Israel UAE agreement, saying: “It could be viewed as positive.” It is also apposite to note that back in 2002 not that long ago in global geopolitical terms – it was the Saudis who launched the ‘Crown Prince Abdullah Peace Plan’ at the Beirut Arab summit, offering Israel full recognition in exchange for a return to its pre-1967 borders. That Iran should seek to leverage this perennial and deep-seated issue of Palestine at this point is entirely unsurprising, as Iran has nothing to lose and everything to gain if it plays the situation correctly. On the one hand, the longer the current violence between Palestine and Israel continues and even better for Iran if Israel launches a ground invasion, the less likely it is that any other Arab state will join the US-led relationship normalisation deal strategy in the region, including Saudi Arabia. On the other hand, given that the key power in Palestine Hamas is extremely closely tied to Iran (along with Hezbollah in nearby Lebanon), Iran might eventually be called upon through diplomatic back-channels to broker some sort of peace with Palestine. In such an event, Iran would undoubtedly seek a dropping of Washington’s hardline clauses for the new draft of the nuclear deal that it is currently on and off negotiating with the U.S.
Although the relationship between Iran and Hamas had cooled off in around 2012 when the military-political grouping that essentially runs Palestine decided to back the Syrian opposition against ruling President, Bashar al-Assad contrary to Iran’s wishes financial necessity on Hamas’s part warmed relations back up again around three years ago. In 2018, according to then-Israeli Defence Minister, Avigdor Lieberman, said that most of the US$260 million that Hamas invested in 2017 in making tunnels and weapons came from Tehran.
Last week, Israel’s Channel 12 reported that Iran had agreed to provide US$30 million per month to Hamas in return for information on Israel’s missile capabilities and its missile locations, following a meeting two weeks ago between nine senior members of Hamas’s militant wing and Iran’s Supreme Leader, Ali Khamenei, in Tehran. Even more recently, the commander-in-chief of Iran’s Islamic Revolutionary Guard Corps, Hossein Salami, warned that Israel was vulnerable to one large tactical operation because the country is so small and highlighted the recent firing of an S-200 missile from Syria as an example of how effective a sustained bombardment by short range missiles might be.
Watkins writes for Oilprice.com
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.