RE-SHAPING OF ENERGY AND GEOPOLITICS IN THE MIDDLE EAST

The spreading conflict alters the equation. The most serious threat comes from collateral damage to energy facilities or the weaponisation of oil and gas supplies

- SATYAJIT DAS

FINANCIAL markets and policymakers are complacent about developments in the Middle East and their effects on energy markets. The market price for oil for future delivery is trading around the mid-sixties per barrel, well below the spot price and below the average inflation-adjusted price for two decades.

Despite the growth of renewables, especially solar and wind power, oil and gas, alongside coal, remain the staple source of energy underpinning modern economies and societies. Currently, the world consumes around 100 million barrels of oil daily (around 50 percent for transport and 20 percent for petrochemicals). No significant decline is forecast due to limited alternatives for heavy transportation and as a chemical feedstock. Natural gas is around 23 percent of the world's total energy consumption and provides a quarter of global electricity.

The Gulf region is the world's most important energy producer, accounting for around 50 percent of proven reserves. It produces around 33 percent of the world's oil and approximately 17 percent of natural gas. Any severe disruption would affect availability and price flowing through to economies.

The absence of concern comes from a perception of ample supplies. In the lead-up to the current crisis, OPEC, driven by Saudi pressure, increased output, causing sharp declines in price exacerbated by slowing demand from decelerating economic activity, particularly in China. In a repeat of 2015, Saudi Arabia sought to punish producers who exceeded quotas agreed upon between member states. It may have been to placate President Donald Trump, who has consistently sought lower oil prices. Saudi Arabia's objective is to maintain its market share as low prices make US shale oil and gas uncompetitive and accelerate the use of a potentially stranded resource.