Iran War May Ignite Middle East Market Share Race, But Not Yet
Iran War May Ignite Middle East Market Share Race, But Not Yet.
When the UAE said it was leaving OPEC so it could boost production as much as it wanted, it sparked speculation, yet again, that OPEC was falling apart. The peace deal between the United States and Iran was a done deal in the eyes of oil traders, and the race for market share was on. Then the missiles started flying again, the U.S. president said the ceasefire is dead, and long-term oil disruption in the OPEC heartland came to the fore.
Reuters' Ron Bousso earlier this week suggested OPEC was on course to turn "from market manager to paper tiger" as the UAE left, Iraq hinted it might leave, too, if it couldn't be allowed to ramp up production, and other Gulf members may be unhappy with leader Saudi Arabia because they also want to pump more while the Saudis prioritize restraint.
The suggestion that OPEC may end up as a loser from the Iran war and the massive global oil disruption it caused hinges on two assumptions, however. One is that demand for oil will be recovering much more slowly than supply, as laid out in a series of reports warning of a glut as stranded tankers began to leave the Strait in Hormuz after the U.S. and Iran struck their preliminary ceasefire deal in mid-June.
That assumption is an interesting one based on history and the fact that when oil prices fall, demand recovers quite quickly, given the centrality of the commodity for the global economy—even those parts of it that have been hard at work to reduce their reliance on oil. In fact, history suggests it is the opposite: demand is slow to decline when prices surge, as evidenced by the series of emergency measures that governments around the world rushed to implement to secure oil supply for their economies, including stock draws and rationing.
But there is another assumption here, and it is a far more damaging one, potentially. This is the assumption that the ceasefire deal would hold, which we have just seen is not the case. As the U.S. started bombing Iran again, following Iran's attacks on ships in the Strait of Hormuz that had refused to follow orders of the country's armed forces that control the waterway, that ceasefire deal was dead. Now, even Reuters' Bousso is talking about long-term disruption in global oil supply.
Indeed, some of the more foresighted observers of events in the Middle East have warned that there is a pretty good chance the war will drag on for much longer than most would hope. This would mean long-term oil and gas flow disruption, and that's despite efforts by Gulf oil and gas exporters to reroute their energy flows. Building a new pipeline takes a while, after all.
The race to regain market share "after the war" was real, but it was a bit premature. The war is still very much ongoing, and the biggest problem for oil exporters is back to finding ways to get as many barrels out as possible. In such a context, OPEC membership may seem irrelevant and even undesirable. Survival instincts encourage a selfish attitude. However, once the war is over, whenever that is, and the dust settles, Middle East oil producers may recall what the purpose of OPEC has been: to give all of them a bigger say in global oil price-setting than they would have on their own. The UAE may want to pump more, but it sure would not want to see prices fall to $40, as some analysts have already predicted, because of that notorious glut that has repeatedly failed to materialize.
US Crude Oil, Product Inventories Fall Even As Hormuz Traffic Begins to Flow
Oilprice Intelligence brings you the signals before they become front-page news. This is the same expert analysis read by veteran traders and political advisors. Get it free, twice a week, and you'll always know why the market is moving before everyone else.
You get the geopolitical intelligence, the hidden inventory data, and the market whispers that move billions - and we'll send you $389 in premium energy intelligence, on us, just for subscribing. Join 400,000+ readers today. Get access immediately by clicking here.
Sinergia Empresarial continuará el seguimiento de esta información sobre iran War May Ignite Middle East Market Share Race, But Not Yet y ampliará la cobertura conforme se confirmen nuevos elementos relevantes para el ecosistema empresarial.
