Moscow. November 22. INTERFAX - Events in the Middle East have reached their apogee, and according to some military experts, they may even be nearing the end.
Thus, it is now possible to determine whether the fears that were voiced at the beginning of the events are justified, that they will have a strong negative impact on the energy situation not only in this region, but throughout the world?
On this topic, our special correspondent Vyacheslav Terekhov talks with Corresponding Member of the Russian Academy of Sciences, Deputy Director of the Primakov IMEMO of the Russian Academy of Sciences, Head of the Institute's Energy Research Center Stanislav Zhukov.
- The fears were fully justified, since Iran is oil, Qatar is gas. And accordingly, the situation in the global energy sector depends on what kind of participation these countries will take in the Middle East events.
- Concerns about the negative impact of the conflict on global energy markets are psychologically understandable. But we must understand that they were largely based on historical analogies that have been irrevocably outdated for at least five to seven years. The Middle East has fundamentally changed and continues to change rapidly. The very reaction of the Arab countries of the Gulf, Egypt, Jordan and even Iran to the confrontation between Israel and Hamas confirms that economic pragmatism has won in the leading countries of the region. The countries, each in their own way, have become involved in globalization, are actively developing regional economic cooperation, have made a strategic bet on the diversification of economic structures, attracting foreign investment and technology. The conflict inherited from the past hinders economic development.
Thus, while the negative consequences have a regional dimension. Already on October 9, for security reasons, production at the Tamar gas field was curtailed, which in turn led to a reduction in gas exports from Israel to Egypt. At the same time, the export of Israeli gas to Jordan was preserved. The reduction in direct exports to Egypt was partially offset by an increase in gas transit through Jordan. Despite the fact that Egypt is experiencing serious difficulties with exporting its own LNG, the loss of Israeli gas has a negative impact on the trade and balance of payments, on the state of which the country's economic growth critically depends. The production interruption turned out to be short-lived, and in mid-November, Israeli gas exports to Egypt began to recover rapidly.
- There were also manifestations of piracy in that region of the world.
- On November 18, 2023, the Yemeni Houthis seized in the Red Sea a Galaxy Leader marine cargo ship leased by a Japanese company, owned by a British company partially controlled by Israeli businessmen and flying from Turkey to India under the flag of the Bahamas. 25 crew members from Ukraine, the Philippines, Bulgaria and Mexico were captured. I am deliberately passing on details that indicate the complex network structure of the modern global economy. In January 2022, the Houthis seized a cargo ship under the flag of the United Arab Emirates, carrying cargo for a hospital in Saudi Arabia. Whatever the goals of such actions are justified, they are regarded as maritime piracy. These actions are damaging the regional economy and trade. If piracy in this subregion becomes the norm and reaches a critical mass, global and regional players will find ways to end it.
The impact of the Middle East events on the world economy and energy markets turned out to be weakly noticeable for two reasons. Firstly, oil and natural gas production in the Gulf has not been affected. Secondly, not a single oil and gas exporter of the Gulf, including Iran, is ready to sacrifice its economic interests and does not really seek to politicize energy. Political statements and declarations do not count.
A surge in energy prices is unlikely!
- Is it possible to expect a surge in energy prices similar to what it was twenty years ago during the events in Iraq: oil prices then rose to $ 120 per barrel.
- As you know, "never say never", but at the moment such a scenario has a low probability of implementation. At the level of fundamental factors, the supply of oil exceeds the demand for it. The increased oil prices are provided exclusively by the policy of the OPEC+ alliance countries to curb production. Over the past two incomplete years, OPEC+ has adjusted oil production quotas for alliance members three times. At the same time, the largest oil producers – Saudi Arabia and Russia – additionally restrict production and exports beyond the commitments they have made under the general agreement of the alliance. Since July 2023, Saudi Arabia alone has been removing an additional 1 million barrels of oil per day from the market every month. It is possible that the kingdom will continue this course in 2024 in order to support oil quotes in the corridor of 80 – 100 dollars per barrel.
The downward pressure on the oil price, as well as on the prices of all risky assets, is exerted by the high interest rates of the central banks of the world's largest economies. It can be expected that in order to suppress inflation, the US Federal Reserve System, the European Central Bank and the Bank of England will maintain interest rates at a sufficiently high level and in 2024 Borrowing on the market will be expensive for financial market players, which discourages them from playing for an increase in oil prices.
Finally, oil prices going up above $85-90 per barrel is a huge risk for the world's debt-laden largest economies, including China and the United States. A price spike can break the already sluggish and slowing economic dynamics. Even if the price of oil shoots up, then almost without a time lag, the destruction of demand will begin, which will drive the price down.
In short, all rational economic factors and considerations work against the rise in the price of oil. But market players and markets are not always rational.
Exporters are rushing to promote their export contracts
- If we take all the recent events, we can say with confidence that the shocks experienced by the world's energy companies have led to the destruction of the stable dynamics of economic development. Such shocks, as experience shows, at the same time give impetus to the struggle for new market niches, new promising directions. Have such directions appeared, and can we say that the energy market has significantly changed?
- If we abstract from Europe, whose economy is in a very difficult situation due to the mistakes of macro regulators in choosing the speed of energy transfer and regulators of energy markets, as well as the powerful destructive exogenous shock of the geopolitical crisis in Ukraine and around Ukraine, the Middle East conflict has not had a noticeable negative impact on the economic dynamics of the world, excluding the economies of Israel and Palestine and the restructuring of energy markets. Rather, we can talk about temporary stresses that are surmountable.
The increased regional geopolitical risk somewhat prevents Qatar from continuing to conclude new long-term gas export contracts. Although I am sure negotiations with potential importers are underway, since almost all major American, European and Chinese oil and gas companies are participating in the new round of development of Qatar's gas reserves. No one will risk the investment decisions already made, estimated at tens and tens of billions of dollars. Moreover, long-term contracts have already been signed for the import of gas from new fields in Qatar for more than 20 million tons of LNG per year, starting from 2026.
Regional geopolitical tensions may slow down the implementation of the plans of the American supermajor Chevron to export gas from the giant Leviathan field to Europe. Gas exporters in the USA, Australia, Africa, who will hurry to promote their export contracts, benefit from this temporary situation. But even in this case, the Middle East risk premium is significantly lower than the risk of a rapid reduction in gas demand in European economies. In other words, the Chevron project may be stopped not because of Middle Eastern tensions, but because of the expected compression of gas consumption in Europe.
Global business will leave from new political risks!
- How will changes in the market affect the possibility of new political risks?
- The world's largest business has long proposed a not ideal, but rational approach to dealing with political risks that are inevitable. The risk in the Middle East region has already de facto manifested itself. And no matter how insignificant its consequences for energy markets and the global economy may be this time, risk managers of the world's largest companies and banks have probably already overestimated the global range of their risks. An effective way to reduce risk is diversification, including geographical diversification of the business. This means that in at least the medium term, the flows of investment and technology that could potentially come to the Middle East will be partially redirected to regions and countries that are more geopolitically calm. More investments will go into oil and gas projects in the USA and Canada, South America, offshore fields off the coast of Africa, and Australia. This logic is guided not only by Western, but also by Chinese, Indian, and any market corporations.
