• 4 minutes US-backed coup in Venezuela not so smooth
  • 7 minutes Why Trump will win the wall fight
  • 11 minutes Oil imports by countries
  • 13 minutes Maduro Asks OPEC For Help Against U.S. Sanctions
  • 18 hours Climate Change: A Summer of Storms and Smog Is Coming
  • 17 hours Tension On The Edge: Pakistan Urges U.N. To Intervene Over Kashmir Tension With India
  • 18 hours The Quick Read On MBS's Tour of Pakistan, India And China
  • 17 hours Teens For Climate: Swedish Student Leader Wins EU Pledge To Spend Billions On Climate
  • 18 hours BMW to add 2,000 more jobs at Dingolfing plant
  • 19 hours Iran Starts Gulf War Games, To Test Submarine-Launched Missiles
  • 19 hours Venezuela: Nicolas Maduro closes border with Brazil
  • 2 days Amazon’s Exit Could Scare Off Tech Companies From New York
  • 1 day Itt looks like natural gas may be at its lowest price ever.
  • 20 hours Saudi A to Splash $100 Bln on India
  • 13 hours Washington Eyes Crackdown On OPEC
  • 16 hours Indian Oil Signs First Annual Deal For U.S. OilIndian Oil Signs First Annual Deal For U.S. Oil
  • 1 day NEW FERUKA REFINERY
Alt Text

Is The Trade War Finally Coming To An End?

Officials from the United States…

Alt Text

Why The EU Can't Save Iran

The EU’s plans to create…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Trending Discussions

Oil Market Fears: War, Default And Nuclear Weapons

The U.S. is one of the few areas of the world in which there is an energy investment boom underway, a development that could smooth out the uncertainties of geopolitical events around the world. At the same time, outside of the U.S., there is a deterioration of stability in many oil-producing regions, aggravating risks for both oil companies and the oil market, according to a new report.

Financial risk firm Verisk Maplecroft explores these two trends as they play out simultaneously. The U.S. shale sector has emerged from years of low oil prices, damaged but still intact. Importantly, the shale industry “can ride out price dips and respond quickly to upticks, weakening OPEC in the process,” James Lockhart-Smith, director of financial sector risk at Verisk Maplecroft, wrote in the report. Combined with deregulation at the federal level, the oil industry is in the midst of an investment boom in the U.S.

Meanwhile, things are not so rosy elsewhere. Verisk Maplecroft surveyed a long list of countries, and produced its Government Stability Index (GSI), which uses some predictive data and analysts forecasts to take stock of geopolitical risk in various countries over the next few years.

The results are not encouraging. The number of countries expected to see a deterioration of stability “significantly outnumber those we see becoming more stable,” the firm said. The reasons are multiple, including low oil prices, but also the erosion of democratic institutions. Related: Something Unexpected Just Happened In LNG Markets

"We don't see increasing instability necessarily ending in coups or significant political upheaval, but a less predictable above-ground-risk environment is likely to emerge," Verisk Maplecroft’s Lockhart-Smith said. "Arbitrary decision making, possible measures to buy off key stakeholders or an inability to pass regulatory reforms will be the main risks to projects in these countries, as their governments seek to stabilise and maintain their influence."

Not all of the countries expected to suffer from a decline in stability are that important for the oil market, such as Romania or Kenya. Also, some countries might be on an improving path, but at the same time present a downside risk that, while unlikely, could be huge.

In this case, Iraq stands out. Verisk Maplecroft says that Iraq “has a business-friendly upstream environment” and the forecast is for stability to improve. However, even if it seems somewhat reasonable that things could trend in the right direction, the downside risk is massive. And there are is no shortage of potential catalysts: The report points to elections in May, plus the “deep ethno-sectarian divisions and weak institutions.”

Venezuela is another obvious flashpoint. The deterioration of the country’s economy and oil sector have been profound. But Venezuela also illustrates a different problem – that disruption need not come from a coup, a civil war or some other obvious geopolitical development. Verisk Maplecroft points to the purge of state-owned PDVSA following the unsuccessful coup in 2002 as a poignant example. The country’s oil production has steadily eroded over the past decade and a half since the Venezuelan state sacked experienced professionals at PDVSA and used revenues for other purposes while failing to invest in existing oil assets.

Verisk Maplecroft argues that Egypt is a potential contemporary example of that phenomenon. The increasingly authoritarian government in Cairo could roll back the policies that attracted investment from oil and gas companies in the first place over fears of a popular uprising.

Related: Shale Drillers Are Supersizing Fracking

Finally, one of the more intriguing cases is that of Russia, the largest oil producer in the world. Verisk Maplecroft sees little risk of political upheaval as Russian President Vladimir Putin seeks another six-year term in March, but a battle could ensue in the upcoming years over his succession when his term is up in 2024, and “factional struggles between liberals and statist former security officials are already ramping up in anticipation of his exit,” the report says.

Verisk Maplecroft puts the odds of a general deterioration of political stability in Russia through 2021 at 90 percent, and the “oil sector will be a strategic prize in this battle, not least because Rosneft CEO Igor Sechin is a central protagonist.”

In the near-term, there are two huge geopolitical threats to the oil market, but neither seem all that likely. Verisk Maplecroft says a potential war on the Korean Peninsula or a war between Iran and Saudi Arabia are the largest threats to the oil market, but both situations, while tense, will probably stop short of outright military conflict. Still, the mere threat of conflict, could add to the risk premium for crude oil prices.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News