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Geopolitical Antagonists Can Be Oil Market Allies

By Ellen R. Wald, Ph.D.CommoditiesJun 14, 2017 05:05AM ET
www.investing.com/analysis/strange-bedfellows:-geopolitical-rivals,-oil-market-allies-200195018
Geopolitical Antagonists Can Be Oil Market Allies
By Ellen R. Wald, Ph.D.   |  Jun 14, 2017 05:05AM ET
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The energy market, more than other commodity markets, is often impacted by geopolitical events. But not every geopolitical event that affects an energy producing country impacts energy markets. When it comes to energy producing countries, major actors can get along even if they are traditional geopolitical antagonists, and it is important for investors to be able to distinguish which geopolitical events are likely to affect the oil market and which are not. Here are some recent examples:

Saudi Arabia and Russia:

Communist Russia and Saudi Arabia were never friends, and diplomatically they take opposing sides on major issues today. Russia is fighting a war in Syria to support the Assad regime. Saudi Arabia opposes the Assad regime and supports efforts to remove it. When it comes to the oil market, however, the Saudis and the Russians have never been closer. Saudi Arabia has convinced Russia to participate in OPEC’s production cuts and even to attend OPEC events (without joining the cartel). Russia and Saudi Arabia are talking seriously about establishing a joint investment fund for opportunities in the energy industry and in energy technology. The Saudis hosted Russian oil minister Alexander Novak at their desert oil facilities earlier in 2017, and in July a Saudi contingent is expected to visit Russian oil installations in Siberia. While they disagree vehemently on geopolitics, there are few closer allies in the energy world right now.

Iran and the Gulf States:

The diplomatic relationship between Iran and most of its Gulf Arab neighbors is almost non-existent. In 2016, rising tensions resulted in an angry mob of Iranians sacking the Saudi embassy in Iran. Saudi Arabia almost banned Iranians from Hajj, the annual Islamic pilgrimage to Mecca. Saudi Arabia also hosted 50 other Muslim countries when President Trump visited, during which Iran was described as a regional threat and supporter of terrorism. Yet despite the fact that GCC countries have been lining up in opposition to Iran diplomatically, they continue to engage with Iran and make accommodations for it in the oil market. GCC countries even agreed in 2016 to exempt Iran from full compliance with OPEC oil production cuts in order to permit Iran’s oil industry to recover from years of crippling economic sanctions. Even though tensions with Iran have increased in the first half of 2017, the Arab Gulf countries easily agreed to continue to Iran’s exemption at last month’s OPEC meeting.

Qatar and Arab Neighbors:

Geopolitically, Qatar is being ostracized by its powerful Arab neighbors, which have essentially embargoed the country for its support of terrorist organizations and its affiliation with Iran. Even though they have halted food exports to Qatar, prevented Qatari flights from flying over their countries, and banned Qatari ships from their ports, Qatar’s oil and gas markets have remained unaffected. In fact, Qatar expressed its continuing support for OPEC and reaffirmed its intention to continue complying with the OPEC oil production cuts. Qatar’s natural gas and LNG exports remain unmolested.

All of these countries (Saudi Arabia, Russia, Iran, and Qatar) have economies built on energy production and sales. They are very rarely willing to sacrifice or endanger their energy industries for diplomatic or geopolitical maneuverings. Investors should consider the motivations at play before presuming that an oil deal or energy supply will be at risk during a global event. Antagonists in politics and diplomacy can work together effectively in the energy market when money is the priority.

Geopolitical Antagonists Can Be Oil Market Allies
 

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Geopolitical Antagonists Can Be Oil Market Allies

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afzal qureshi
afzal qureshi Jun 14, 2017 4:11PM ET
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Good Analysis
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Jun 14, 2017 1:20PM ET
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Russian minister recently said he expects $40 oil if cuts do not extend past EOY. Thoughts?
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Jun 14, 2017 1:20PM ET
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They are for the affection You can always count on me as much as I can be part of the group and I will have the pleasure of knowing that I am part of your network also welcome to my network I also like developed people and have a good good né Showed me that you besides being a very educated person is a person of good heart and good nature thank you for being my friend here on the network welcome very much Jesus gave you a beautiful afternoon and a great night Thank you have a friend To talk when you want to change
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Alex Uglev
Alex Uglev Jun 14, 2017 1:07PM ET
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Communist Russia? Are you joking?
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Jun 14, 2017 1:07PM ET
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Read it again, dear. Slowly.
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Jun 14, 2017 1:07PM ET
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Here in the group I do not understand your language well I'm sorry for not understanding what you're saying is about downloading It understands well downloading that's just this I'd like you to explain to me you can I
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Brijesh Patel
Brijesh Patel Jun 14, 2017 10:35AM ET
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Nice report but fact is oil to fall . Nearly 4 years OIL price cant stay above $50 . Everytime same story , Before opec meeting price start north and after meeting back south -:)
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Stanley Emmy
Stanley Emmy Jun 14, 2017 9:09AM ET
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Thanks Ellen
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Timochin Khan
Timochin Khan Jun 14, 2017 7:47AM ET
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Well done Ellen....Excellent report...
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Kim Boesgaard Lauritsen
Kim Boesgaard Lauritsen Jun 14, 2017 6:14AM ET
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Hello Ellen. Thank you very much for that analysis, and for sharing it with me, i sincerly hope you are having a great day, greetings from Denmark. I will share it in my network:-)
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