Oil markets have been sanguine about geopolitical risk in recent years.
At the peak of oil prices in 2008, observers ascribed as much as US$10 to $15 per barrel of the price to a “risk premium”. Now, with Iraqi troops advancing on Kirkuk and the US president Donald Trump ceasing to certify the Iran nuclear deal, is it time for the risk premium to return?
Oil prices have risen significantly since their year-low of $44.82 for Brent crude in June. In the week running up to the Kurdish vote, Brent gained $3 to reach a 2017 high of $59.02 on September 25 before falling back a little, closing at $57.17 on Friday. Continuing adherence to the Opec production cuts agreement has been supported by robust demand.
Most recently, geopolitical threats have returned: tensions over Kurdistan’s independence referendum; and the prospect of a new US-Iran confrontation. It is rational to pay more for oil today if one fears the supply may be disrupted tomorrow – leading to a valuable asset such as a plane or a refinery lying idle. But are these fears justified?
The current price rises are not comparable in magnitude to those of 2008 or 2011-12, when there was actual, large-scale disruption to supplies from Libya and Iran. The market was already tight at those times, and Brent gained some $25 per barrel in the months leading up to Colonel Gaddafi’s overthrow.
Today, the market has been tightened only, in a sense artificially, by the Opec and non-Opec production cuts. Inventories have been coming down but OECD stocks remain 170 million barrels above the five-year average, itself inflated by three years of glut.
The Kurdish stand-off remains concerning but the likelihood of a significant disruption to oil supplies is still limited. After Iraqi troops and Baghdad-backed militia advanced on Kurdish positions around the pivotal oil town of Kirkuk, both sides appear to have paused for consideration and negotiation. Turkey, with its own economic interests at stake, has not closed the pipeline carrying some 600,000 barrels per day of Kurdish-produced oil to the Mediterranean.
With the Joint Comprehensive Plan of Action (JCPOA) with Iran at risk, the Europeans, Russians and Chinese are not about to back the US in any new sanctions and so the direct impact on production or exports will be limited. If the US were able to cut off badly-needed new investment in Iranian oil-fields, output might drift down by about 150,000 barrels per day by the end of next year.
Beyond largely unconnected incidents, are there any reasons to believe that threats of disruption to oil are systematically on the rise? Two can be advanced.
The first is the current dysfunction of US diplomacy, which is compounding and accelerating a longer-term trend of declining American global engagement and influence. Although an oil-man himself, the US secretary of state Rex Tillerson appears to have been out-manoeuvred by the ambassador to the UN Nikki Haley in the decision to de-certify the JCPOA. In a rare show of unanimity, the leaders of Germany, France and the UK, chancellor Angela Merkel, president Emmanuel Macron and the prime minister Theresa May, issued a joint statement supporting it.
Mr Tillerson’s letter to the Kurdish president Masoud Barzani, promising US support for talks with Baghdad, came too late or was not convincing enough to halt the referendum. And despite his long history with both Abu Dhabi and Doha, he has been unable to mediate an end to the Qatar dispute.
The US is increasingly opposed in novel theatres both by old adversaries Russia and North Korea, and long-time allies, including Turkey and now even the EU.
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The second is the persistence of low oil prices. This puts stress on oil-producing states, raising the likelihood of unrest in countries from Venezuela to Nigeria. This may erupt in other, unexpected places.
Yet, unless the Iranian situation really spirals out of control, the likely impacts on production this time from any one hotspot are limited. It would take several events coinciding to add up to a major interruption. Imagine that Venezuela defaults on its debts and cannot pay for tankers and essential oilfield supplies. At the same time, fighting erupts again over the Libyan oilfields, Turkey closes the Kurdish oil pipeline, and new US sanctions on Iran deter but do not prevent crude buyers.
Each of these events might cut half a million barrels per day. The cumulative impact, 2 million barrels per day, is about equal to the planned Opec and non-Opec cuts. So Opec and its adherents would have a choice. They could support the “market stability” they always profess by suspending their production cuts, which would be enough to offset most of the disruption. They - Saudi Arabia, in particular - would gain from higher volumes and still modestly increased prices.
Or, they could try to maintain their production cuts, although Iraq in this case would be able to make up the Kurdish loss while remaining compliant. Prices would be significantly higher, the drawdown of inventories would accelerate, but Opec would yet again risk reviving shale oil producers and harming demand.
So far, the market reaction to these developments appears proportionate. The likelihood of serious disruption has risen but remains low; and Opec could largely cover for losses. Not until the market fundamentals tighten further should we really worry.
Robin M Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
Quick%20facts
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THE SPECS
Engine: 1.5-litre
Transmission: 6-speed automatic
Power: 110 horsepower
Torque: 147Nm
Price: From Dh59,700
On sale: now
Important questions to consider
1. Where on the plane does my pet travel?
There are different types of travel available for pets:
- Manifest cargo
- Excess luggage in the hold
- Excess luggage in the cabin
Each option is safe. The feasibility of each option is based on the size and breed of your pet, the airline they are traveling on and country they are travelling to.
2. What is the difference between my pet traveling as manifest cargo or as excess luggage?
If traveling as manifest cargo, your pet is traveling in the front hold of the plane and can travel with or without you being on the same plane. The cost of your pets travel is based on volumetric weight, in other words, the size of their travel crate.
If traveling as excess luggage, your pet will be in the rear hold of the plane and must be traveling under the ticket of a human passenger. The cost of your pets travel is based on the actual (combined) weight of your pet in their crate.
3. What happens when my pet arrives in the country they are traveling to?
As soon as the flight arrives, your pet will be taken from the plane straight to the airport terminal.
If your pet is traveling as excess luggage, they will taken to the oversized luggage area in the arrival hall. Once you clear passport control, you will be able to collect them at the same time as your normal luggage. As you exit the airport via the ‘something to declare’ customs channel you will be asked to present your pets travel paperwork to the customs official and / or the vet on duty.
If your pet is traveling as manifest cargo, they will be taken to the Animal Reception Centre. There, their documentation will be reviewed by the staff of the ARC to ensure all is in order. At the same time, relevant customs formalities will be completed by staff based at the arriving airport.
4. How long does the travel paperwork and other travel preparations take?
This depends entirely on the location that your pet is traveling to. Your pet relocation compnay will provide you with an accurate timeline of how long the relevant preparations will take and at what point in the process the various steps must be taken.
In some cases they can get your pet ‘travel ready’ in a few days. In others it can be up to six months or more.
5. What vaccinations does my pet need to travel?
Regardless of where your pet is traveling, they will need certain vaccinations. The exact vaccinations they need are entirely dependent on the location they are traveling to. The one vaccination that is mandatory for every country your pet may travel to is a rabies vaccination.
Other vaccinations may also be necessary. These will be advised to you as relevant. In every situation, it is essential to keep your vaccinations current and to not miss a due date, even by one day. To do so could severely hinder your pets travel plans.
Source: Pawsome Pets UAE
The specs
Engine: Two permanent-magnet synchronous AC motors
Transmission: two-speed
Power: 671hp
Torque: 849Nm
Range: 456km
Price: from Dh437,900
On sale: now
The lowdown
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- Torrijos Palace dome
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The specs: 2018 Bentley Bentayga V8
Price, base: Dh853,226
Engine: 4.0-litre twin-turbo V8
Transmission: Eight-speed automatic
Power: 550hp @ 6,000pm
Torque: 770Nm @ 1,960rpm
Fuel economy, combined: 11.4L / 100km
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