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Two scenarios for oil supply amid tension in Middle East

Oil&Gas Materials 9 January 2020 11:15 (UTC +04:00)
Two scenarios for oil supply amid tension in Middle East

BAKU, Azerbaijan, Jan. 9

By Leman Zeynalova - Trend:

The short term effect of the tensions in the Middle East may be the continuous rise of oil prices should escalation continue, Ariel Cohen, senior fellow at the Atlantic Council and founder of the International Market Analysis LLC, told Trend.

He noted that the Iranian missile attack on US military bases is the retaliation for the US drone strike which killed the IRGC general Qassem Soleimani. “Both sides may not want a massive war, but may be sucked in to an escalation dynamic all the same. “

Cohen noted that the main theater of such a conflict – whether open or ‘low intensity’ -- will be the Persian Gulf. If shipments of oil, or Saudi oil fields are affected, Iran may have opened the gates of hell they will come to regret.

“The short term effect depends on the course of escalation chosen by both parties. Increasing tit-for-tats will mean be the continuous rise of oil prices. Iranian oil infrastructure may be hit, including the key Kharg island export terminal. The long term effect will cause a global economic slowdown, eventual decline on demand, and further diversification away from Persian Gulf and Middle East hydrocarbons” he said.

The expert noted that the tensions in the Middle East will accelerate the transition to electrically powered cars, as they are not dependent on supply of oil and have multiple sources of energy for generating electricity. “This includes natural gas, nuclear, coal and renewables (solar and wind). Thus the war in the Gulf will not affect the supply of fuel to electric cars. The key question today is whether the two parties will remain in the asymmetric and indirect mode of conflict or the US will forces its preferred mode of conflict which is military confrontation. This will define the stability of the oil production and shipment in the Gulf and will affect the prices. If we remain in the indirect and asymmetric mode, oil is safer and the prices will go up slower. If we are in a massive military confrontation with heavy losses on both sides, oil prices will go up faster, all the way up to $120 range.”

Cohen said in his remarks President Trump clearly indicated that he is not interested in a big conventional war in the Middle East and he is basically accepting the Iranian symbolic firing as a response to killing of Soleimani. “That doesn’t mean that the conflict between Iran and the US is over, but it means the US is not going to a big war tomorrow.”

Iran’s Islamic Revolutionary Guard Corps (IRGC) used Fateh-313 ballistic missiles in attack on Iraq’s Ayn al-Asad Air Base. These missiles were fired from Iran’s Kermanshah province (430 kilometers) because of its proximity to the military base. The missiles have a range of 500 kilometers. Previous reports said that at least 80 US servicemen were killed in an attack on Iraq’s Ayn al-Asad Air Base by the Islamic Revolutionary Guard Corps (IRGC). About 200 people were injured.

Ayn al-Asad Air Base was a strategic spot for the US and delivered support to drones from that base, the IRGC representative said. Fifteen missiles were fired at 20 sensitive locations, Numerous drones and helicopters were destroyed.

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Follow the author on Twitter: @Lyaman_Zeyn

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