BAKU, Azerbaijan, Jan. 3
By Leman Zeynalova - Trend:
There is no direct impact on oil supply from the latest US attack, which killed General Qassem Soleimani, the head of Iran's Islamic Revolutionary Guard Corps’ (IRGC) Quds Force, Trend reports citing Caroline Bain, Chief Commodities Economist at the UK-based Capital Economics research and consulting company.
The price of Brent jumped 4 percent on Jan.3 in response to the US drone attack at Baghdad airport which killed the leader of Iran’s renowned Quds force, Qassem Soleimani.
“This represents a major escalation in what is being called the “shadow” war between Iran and the US,” said the economist.
She pointed out that Iran’s oil exports are already severely curtailed as a result of US sanctions. And while it appears that Iraq is being caught in the crosshairs of the US-Iran tensions, it is unlikely to affect Iraq’s oil production directly (in fact, its output is already slipping due to months of civil unrest.), said Bain.
“That said, Tehran has promised “tough revenge”, and this would probably involve disruption to regional oil supplies. What’s more, the country has a long history of threatening to block the Strait of Hormuz, the world’s busiest oil shipping channel,” noted the economist.
Bain recalled that last year, Capital Economics assessed the likely impact on oil prices of conflict in the region.
“Our analysis showed that while the price of Brent could soar to as much as $150 per barrel, the rally may prove short-lived as supply networks adjust and demand falters in the wake of higher prices,” she said.
Meanwhile, as the economist said, oil prices were already rising before the attack.
“This positive momentum could mean that prices remain elevated as a result of the escalation in tensions. We think that the relatively muted reaction in the oil market to the Aramco attack reflected the fact that investors were focussing on the negative impact on oil demand of a slowing global economy,” she said.
Bain said Capital Economics expects oil prices to rise this year, regardless of geopolitical events.
“We have recently raised our end-2020 forecast for the price of Brent to $75 per barrel ($70 previously). The upward revision was the result of our calculation that the market would move into a small deficit this year, owing to OPEC+ output restraint, slower growth in US oil production and a gradual pick-up in global economic growth. Additional demand for crude to refine distillates as a result of the IMO 2020 regulations is likely to be a further factor supporting prices. If nothing else, the latest escalation in US-Iran tensions has removed one of the downside risks to our price forecast which was a possible lifting of US sanctions on Iran. Irrespective of geopolitical factors, we think that the oil price will end the year higher based on supportive supply and demand fundamentals,” she added.
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