Posts tagged “Middle East”
Impacting Economics, Geopolitics and Markets
The U.S. is expected to spend about 8.5% of its GDP on energy in 2013. In 2008, when oil prices peaked, it was closing in on 10%. U.S. oil production provides a buffer to supply shocks — which happens frequently in the Middle East and North Africa, two key crude supply regions. In July 2013, disruptions to crude oil and liquids production were nearly 2.7 million barrels per day. Of the supply disruptions, 800,000 barrels were from non-OPEC nations and the other 1.9 million from OPEC, according to the U.S. Energy Information Administration (EIA). August is estimated at a 2.8 million shortfall.
The OPEC-related outages, which include Iran, Iraq, Libya and Nigeria, are considered to be the highest since early 2009. This has contributed to rising prices, from the year’s low of $97 in April to a high nearing $117 August 27th, after Syrian chemical weapons attacks followed on the heels of Egypt’s political turmoil. The causes of the outages in Libya were from labor disputes, while Iraq’s shortfalls originated from pipeline disruptions from violence; Iran’s woes stem partly from sanctions, and Nigerian oil challenges related generally to oil theft and infrastructure sabotage and degradation.
The SPR Grew Without Buying A Barrel
Although mainly focused on the oil market’s current jitters over Syria, Liam Denning’s Wednesday “Heard on the Street” column in the Wall St. Journal neatly highlights the extraordinary degree to which resurgent US oil production and weaker US demand have boosted the effectiveness of US oil inventories, including the US Strategic Petroleum Reserve (SPR). Without adding a drop — the SPR actually shrank a bit in 2011 — the reserve’s potential to replace daily imports in a crisis has soared as those imports have declined.
In the near term this could prove extremely helpful should expected US-led reprisals against the Syrian government result in a regional disruption of oil flows. Longer term, it serves as a further reminder that the existing SPR was designed for another era and is overdue for a major rethink.
Geopolitical Risk Continues, Part Two
Turmoil in Egypt continues to roil oil markets and confound Middle East regional stability. Goldman Sachs said Monday, August 19th, five days after the violence escalated, it expected tighter oil markets to propel Brent to $115 “in the very near term.” More interesting though are the shifts occurring in the geopolitical landscape of the broader Middle East.
Saudi King Abdullah publicly gave his approval and support for the military-backed government of Egypt. He pledged a $12 billion aid package along with the UAE and Kuwait, four times as much as the military and economic grants from the U.S. and the European Union combined ($1.5bn and $1.3bn respectively). The threat of political Islam vis-a-vis the Muslim Brotherhood is seen as potentially up-ending stability in the Kingdom. This high-stakes game of regional poker has just gotten more complicated. The outcome, which may occur in waves of violence and instability, could take many years to be realized.
From late 2007 through 2008, the global price of food saw an unprecedented upwards spike in prices, measured by the UN’s food price index, a broad measure of food prices. That spike was followed by another one in 2010 through early 2011 (see chart).
Here in the United States, we hardly felt the pinch at all. Food prices for the average American in the grocery store have almost no link to world food prices – as marketing, transportation, and processing can account for up to 80% of the total cost of food in the grocery store. However, major grain importing countries are sorely affected by these price spikes. For instance, as the Egyptian government continues to negotiate a new IMF loan, a sticking point is that over 9% of its total budget outlay is devoted to subsidizing food.
The price for a gallon of gasoline has continued its decline in the United States, but analysts fear that unrest in the Middle East could encourage it to reverse its downward trajectory before long. The average price of a gallon of gas dropped 7 cents over the past two weeks across the country, bringing the cost to consumers to $3.47 per gallon for regular fuel, $3.65 for mid-grade fuel, and $3.78 for premium fuel, while diesel dropped 4 cents to an average of $4.04 per gallon. The latest surveys show that Memphis, Tennessee is enjoying the lowest prices at only $3.04 per gallon, with Long Island, New York, a region still recovering from the devastating effects of Hurricane Sandy, suffering… Continue»
Should the cost of maintaining a military presence in the Middle East be viewed as a subsidy to oil companies? This idea has been repeated often enough to become unchallenged conventional wisdom codified by the “NO WAR FOR OIL” bumper sticker.
It has been argued that the Gulf and Iraq wars were not necessary to keep the global price of oil stable and neither is our continued military presence in the Middle East. There is no way to rerun the experiment to see what the world would look like had we not had the Gulf and Iraq wars. My guess is that the Gulf war was probably a smart move, the Iraq war, maybe not so smart.
America’s relationship with Middle East energy resources is changing. Technological breakthroughs in hydraulic fracturing (or “fracking”), renewed drilling in ultra-deep waters in the Gulf of Mexico and, soon, drilling in the Arctic Circle are re-energizing U.S. domestic petroleum production and shrinking the demand for foreign petroleum imports. Meanwhile, oil and natural gas production in the Americas — from Canada in the North, to Brazil and Colombia in the South — are beginning to displace U.S. reliance on Middle East oil. These emerging energy trends will affect America’s relationship with the Middle East in important ways. But do not expect a fundamental shift in U.S. foreign policy in the region any time soon.
The Carter Doctrine and U.S. Energy Interests in the Middle East
The United States has had historical concerns about assured access to Middle East petroleum resources that have shaped U.S. involvement in the region. President Jimmy Carter famously declared in his 1980 State of the Union address that the United States reserved the right to use force to protect the flow of petroleum from the Middle East to the United States: “An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”
Although U.S. interests in the Middle East have become more complex since the Carter administration – to include concerns about violent extremism, human rights abuse and nuclear proliferation – it has become almost axiomatic to say that U.S. involvement in the Middle East has been tied solely to concerns about securing access to the region’s petroleum resources. Whether or not one buys that, the perception that U.S. interests in the Middle East are tied solely to concerns about energy supplies raises some questions about whether the United States will lose interest in the Middle East as it becomes less reliant on energy imports from the region.
An Expanded Look at Five Myths about Gas Prices This past week I had an article published in the Washington Post called Five Myths about Gas Prices. I will discuss each particular myth in detail below, but the five myths I addressed were: Fighting in Libya is sending gas prices higher. Tapping the Strategic Petroleum Reserve is a smart way to reduce gas prices. Oil companies produce less in the spring to make gas prices increase. The Obama administration is driving up gas prices. Americans can’t live without cheap gas. Because such articles go through an editing process and must conform to limits on the length of the article, some topics couldn’t be addressed in sufficient detail. Sometimes during the… Continue»
I am between flights and have been traveling for a few days, but wanted to get off a quickie on current oil prices. In hindsight, perhaps I was not aggressive enough with my predictions for 2011. My predictions covered two themes: Next generation biofuel producers whose business models would begin to collide with reality, and oil prices that would head back over $100 per barrel. Less than two months into 2011, there has been big news on both fronts. We have already spent a few weeks discussing the Range Fuels debacle, and now oil prices have once again breached $100. In fact, many markers such as Brent crude have been above $100 for several weeks, and they recently approached $120… Continue»
The secretary of Russia’s National Security Council is now warning that militants have joined forces with pirates to carry out attacks on key maritime oil transport hubs like the Strait of Hormuz and the Suez Canal. According to the EIA, the Strait of Hormuz “is the world’s most important oil chokepoint due to its daily oil flow of 16.5-17 million barrels (first half 2008E), which is roughly 40 percent of all seaborne traded oil (or 20 percent of oil traded worldwide).” The following is the final segment of this week’s three-part series (Links to: Part I and Part II) on oil infrastructure and terrorism. Regularly scheduled programming will follow shortly. The report was written by Donald J. Evans, a Senior… Continue»