Oil Prices To Spike Despite Slight Bounceback: Dutch Expert
The attacks on two oil tankers in the Gulf of Oman on Thursday will have an upward pressure on oil prices, and Middle East expert and geopolitical disruptive thinker energy, investments and security, has said.
“The first coming days, however, this could be only a slight increase, but if there is a real proof of a state-actor involvement (aka Iran) the price will shoot above $75-80 before even real military action is being taken,” Cyril Widdershoven, Director at VEROCY, told The Lede in an exclusive interview.
VEROCY is a Netherlands-based Integrated Risk Consultancy focusing on the Middle East and North Africa-Turkish region and their main focus of areas are energy-oil and gas, defense and security, geopolitical-country risks and financial institutions.
On Thursday morning, an oil tanker carrying 75,000 tonnes of naphtha was “torpedoed” and another tanker carrying methanol was “hit” by naval mines near Strait of Hormuz in the Gulf of Oman.
The Marshall Islands-flagged tanker, Front Altair, was heading to Taiwan from UAE when it was “torpedoed” and the Panama-flagged tanker, Kokuka Courageous, was “attacked” while heading to Singapore with cargo loaded from Saudi Arabia.
Responding to the attack, US Secretary of State Department Michael Richard Pompeo had tweeted that it is the assessment of the US government that Iran is responsible for attacks in the Gulf of Oman.
“These attacks are a threat to international peace and security, a blatant assault on the freedom of navigation, and an unacceptable escalation of tension by Iran,” his tweet read.
And later on Thursday, the US military also released a video claiming that Iran's Revolutionary Guard (IRGC) were seen removing an unexploded mine from the side of one of two oil tankers attacked earlier in the day.
“At 4:10 p.m. local time an IRGC Gashti Class patrol boat approached the M/T Kokuka Courageous and was observed and recorded removing the unexploded limpet mine from the M/T Kokuka Courageous,” Navy Captain Bill Urban, a spokesman for the US military's Central Command, had said in a statement.
After losing 4% on worries of oversupply Wednesday, crude futures bounced back about 2% Thursday on reports the tankers sustained significant fire damage, CNBC reported.
Widdershoven said that at present, analysts are still indicating that the oil market is slightly oversupplied, but this is only half true.
“The main issue is that most of the high-quality crudes that Asia and Europe needs are still coming from the GCC-Iranian region. With increased conflict and potential of further attacks US shale oil is not going to be able to save the market at all,” he added.
When asked whether the attacks would lead to an oil price hike, he said that the possibility of a real price hike is there for two reasons.
Widdershoven said that one is military conflict or regional instability will for sure have a detrimental effect on all, pushing prices upwards and the second is, there is already a market situation in which the last 4 weeks prices have plunged too much, in an overreaction to possible negative effects of the US-China trade war, possible global recession or less growth.
“These factors, however, have not been corroborated and are misguiding the price market at present. A contra-reaction is already expected to push prices also up,” Widdershoven added.
Impact On India
On the price hike and its impact on India, Widdershoven said that a price hike will have negative effects on India for sure.
“First of all, India is fully depended on the Middle East and African oil supplies. At the same time, it is also for gas depended, which is strangely not being addressed in the market, but Qatar and UAE are LNG exporters to Asia since decades,” Widdershoven said adding that secondly, higher crude oil and petroleum product prices will need to be taken into account in India also.
“Looking at overall price levels in India, and the salaries, a negative economic impact will be expected,” he added.
According to Rystad Energy, independent energy research and business intelligence firm, around 40% of the world’s traded crude oil is transported through the Strait of Hormuz between Iran to the north and UAE and Oman to the south.
In other words, between 17 million and 18 million barrels per day of crude oil pass through the Strait of Hormuz, including 90% of Saudi Arabia’s output and 75% of Iraqi exports, in addition to all oil exports from Iran, Kuwait, Qatar and Bahrain.
The Strait of Hormuz is crucial as there are no alternative routes and the pipelines owned by the UAE and Saudi Arabia cannot carry as much oil as tankers, and while Saudi Arabia and Iran have alternate seaports, their neighbours do not.
This means that any sign of friction in the Strait has the potential to make global oil prices high and also add to the woes of heads of states.
No Other Routes
According to Widdershoven, the main issue for most of the current oil and gas from the region is that there is no other major another route for these tankers available.
He also added that additionally, some of the other options, the pipeline from east to west in Saudi Arabia or the Fujairah pipeline UAE have also become a target lately.
“So tankers need to pass. It also is the same for all traffic from and to the Gulf region, including food, containers, etc,” he added.
When asked what kind of measures could be adopted for safeguarding the passage, Widdershoven said that bringing in NATO, Indian and Chinese navy to the region to protect the specific vessels while sailing through the area, putting in place anti-measures by Arab countries for the national seas and vessel owners, and chartering companies putting in anti-measures on their vessels and including armed personnel can help.
And finally, when asked whether the insurance prices for tankers will go up, Widdershoven said that yes, chartering rates will increase.
“Insurance fees will be higher, while demand for ships could also be hit, as companies become wary,” he said.
In May also, two tankers were “attacked” in the Gulf of Oman prompting US President Donald Trump to point fingers at Iran.
Saudi Arabia has been alleging that Iran was behind the May attack and also behind the Thursday attack.
Since 2015, Saudi-led coalition is fighting a war in Yemen with Iran-supported Shia Al Houthi rebels.
On Wednesday, Houthi drones had attacked Saudi Airport in Abha injuring 26 people.
And on Friday too, there was a missile attack. However, Saudi forces intercepted the five drones, a Riyadh-led military coalition fighting the rebels said.
In May, Saudi oil pipelines were also attacked by Houthi drones.