Baku, Azerbaijan, Jan.4
By Leman Zeynalova – Trend:
Iranian general Soleimani’s death adds a high degree of uncertainty to the oil market, Francis Perrin, Senior Fellow at the Policy Center for the New South (PCNS, Rabat) and at the French Institute for International and Strategic Affairs (IRIS, Paris), told Trend.
On Jan. 3, Major General Qassem Soleimani, the head of Iran's Islamic Revolutionary Guard Corps (IRGC) - Quds Force and Iraqi militia commander Abu Mahdi al-Muhandis were killed as a result of air strikes at Baghdad Airport. The Pentagon claimed responsibility for the assassination of the Iranian general.
“As usual the first reaction on the oil markets is a sudden and strong increase in oil prices, which is not surprising because we are speaking about strong geopolitical tensions in the Middle East, a region where about 48 percent of world proven oil reserves are located. Prices were already on an upward trend due to these tensions but also to an announcement by the American Petroleum Institute regarding a fall in US crude stocks last week and to hopes of a first agreement between the US and China over their trade disputes,” he said.
Perrin pointed out that the market’s reaction was strong due to the importance of the Middle East in terms of oil reserves, production and exports but also because what has just happened in Iraq is opening a period of massive uncertainties.
“Traders do not like uncertainties, especially on the geopolitical front. Iran has promised a terrible revenge. There are dozens of possible scenarios and nobody can really forecast or control what will happen now. To sum up a high degree of risk and a high degree of uncertainty: it is a very powerful and a very dangerous configuration. According to some of these scenarios, oil facilities could be attacked, which would impact production and exports from the Middle East. It would add up to the price factor and intensify of course the bullish pressures on oil prices,” said the expert.
Perrin believes that these developments should not have a long-term impact on the oil markets.
“We are facing short-term impacts (days or weeks) and possibly medium-term impacts. If there are no physical attacks on oil facilities the impact will be focused on prices in the short-term. In the case of attacks targeting the oil sector and according to the importance of physical damage to such facilities the impact could cover a mid-term horizon,” he added.
He noted that so far the rise in oil prices is good news for OPEC and non-OPEC producing countries.
“They decided at the beginning of December 2019 to increase their production cuts in order to sustain oil prices. North Sea Brent price rapidly increased to almost $70 per barrel following the killing of Qassem Soleimani, which is a fairly good level for producers. That being said these countries are not in favor of skyrocketing oil prices because it could have a negative impact on world economic growth and on world oil demand. And these countries do not like of course instability, geopolitical tensions, military operations and wars,” Perrin concluded.
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