Without the fear premium, oil doesn't have much else to boost it for 2020. And right now, that fear premium has produced a sudden $3 surge in oil prices following the assassination by US drone strike of Iran's key general of the Quds foreign arm, Qasem Soleimani.
The million-dollar question now is whether that premium has legs, or whether it will be another blip on the radar such as that following the attack on Saudi Aramco facilities that threatened to take a major chunk of the world's oil offline.
Whether the premium has legs must be viewed from various prisms. In this case, it has no immediate, direct impact on oil supply. The Saudi Aramco attack did, and still failed to boost oil beyond a day.
One prism is the impeachment of a US president and looming 2020 elections. There's nothing like the dazzling assassination of a foreign army general who has been targeted many times in the past to captivate the audience. As far as campaign stunts go, it doesn't get much better than this.
But the 'fear premium' is a tricky one to navigate. Fear is fleeting. Right now, that premium is based on the fear of an all-out war between Iran and the US, which would easily become World War III. But 21st century warfare isn't the same. It's cold war tactics with targeted hot zones, and arguably, it's already been going on for some time.
If oil is waiting for some definitive escalation that looks like World War III, it will probably be disappointed. What it could get,…
Without the fear premium, oil doesn't have much else to boost it for 2020. And right now, that fear premium has produced a sudden $3 surge in oil prices following the assassination by US drone strike of Iran's key general of the Quds foreign arm, Qasem Soleimani.
The million-dollar question now is whether that premium has legs, or whether it will be another blip on the radar such as that following the attack on Saudi Aramco facilities that threatened to take a major chunk of the world's oil offline.
Whether the premium has legs must be viewed from various prisms. In this case, it has no immediate, direct impact on oil supply. The Saudi Aramco attack did, and still failed to boost oil beyond a day.
One prism is the impeachment of a US president and looming 2020 elections. There's nothing like the dazzling assassination of a foreign army general who has been targeted many times in the past to captivate the audience. As far as campaign stunts go, it doesn't get much better than this.
But the 'fear premium' is a tricky one to navigate. Fear is fleeting. Right now, that premium is based on the fear of an all-out war between Iran and the US, which would easily become World War III. But 21st century warfare isn't the same. It's cold war tactics with targeted hot zones, and arguably, it's already been going on for some time.
If oil is waiting for some definitive escalation that looks like World War III, it will probably be disappointed. What it could get, however, is an Iraq that falls apart at the seams and the final blow to the security of all that oil in Basra that was already facing its biggest threat since the US invasion in 2003.
Much like Trump has to overcome impeachment and gain lost ground ahead of 2020 elections, Tehran has to overcome the loss of its key Quds general in the Middle East--the plotter of influence in Iraq and the mastermind of Iran's Syria foothold.
Soleimani is replaceable, and this does not represent the destruction of the powerful Quds force of the Iranian Revolutionary Guard. This assassination was a magnificent made-for-Hollywood assassination, and Iran will find the need to respond in kind, with something equally dazzling, but equally inconsequential.
In 21st Century warfare, if you're looking for the legs on the fear premium for oil, look for spectacular attacks that avoid conventional, all-out war.
The $6B Pipeline That Will Change Geopolitics Forever
The $6-billion, 1,300-mile EastMed pipeline is what keeps Turkey awake at night, and Israel, Greece and Cyprus signed on Thursday the much-awaited deal to get construction off the ground.
Some 1,180 miles of this pipeline will run under the Mediterranean, bringing Israeli gas through Cyprus and Crete to the Greek mainland, and then to Italy through an overland section. Fraught with logistical and geopolitical problems from the start, Turkey's intensified meddling everywhere from Syria and Libya to offshore Turkey have brought the urgency of the pipeline into clearer focus than ever.
The EastMed pipeline will have a capacity of up to 12 billion cubic meters of gas a year, or around 10% of Europe's total needs. The signing of the pipeline deal comes right after Israel's massive Leviathan gas field started pumping its first gas last week. 10% doesn't represent that big of a threat to Russian gas. The threat is to Turkey's plans of a) becoming the key energy hub and b) preventing Cyprus from enjoying the benefits of its lucrative offshore oil and gas.
Turkey's recent meddling has largely removed the political hurdles to the project, and Israel's gas finds and bringing Leviathan online, while securing revenue from exports to Europe, make it economically feasible. It is now, decisively, a project of common interest.
Logistics remain a problem, and this is exactly what Turkey's recent maritime boundary deal with Libya was all about. Because of the dispute between Cyprus and Turkey, the pipeline has to divert to avoid Turkey's maritime boundaries. Turkey's trying to make sure it has to divert even further, and is basically threatening the pipeline with the Libya deal. Ankara is setting the stage for potential maritime attacks that would thwart not only drilling offshore Cyprus, but pipeline construction.
This is the key oil story to watch in 2020.
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