By Robertson, Charles
FRI, JUNE 21 2019-theG&BJournal- I was very sceptical about the first “attacks” on tankers around the Straits of Hormuz a few weeks ago. The second attacks made me re-think this because there was one scenario that suggested Iran might indeed be responsible. The scenario is this … 1) Trade war and global slowdown sends the oil price lower, so 2) the US can withdraw the waivers that Trump granted to some countries in mid-2018 so they could still import Iranian oil (the waivers were granted because Brent oil rose through 70 and was heading to 80). While this would raise the oil price … the global slowdown implies it would not rise to 80 or more, levels which provoke Trump to tweet angrily at Saudi Arabia.
Iran’s economy is already in trouble – but in 2018 it produced 4.7m bpd and consumed 1.9m bpd – suggesting it exported 2.8m bpd. In 2017 it produced 5.0m and consumed 1.8m, implying exports of 3.2m so Trump maybe cut Iranian net exports by 11% in 2018. By contrast, Venezuela’s output fell from 2.0m in 2017 to 1.5m in 2018 – US pressure on Venezuela (or Vene economic meltdown) was more effective. It’s net exports went from 1.5 to 1.1m – down nearly a third.
Now if Trump can cut Iran’s exports by maybe 1m bpd ..or by roughly a third .. this will whack the budget, weaken the currency, send inflation higher and put pressure on Iran’s regime. It would imply Iran’s per capita oil exports dropping below Algeria’s level – and we’ve all seen what’s happened to Algeria in recent months.
Note our Revolutionary Nature of Growth work suggests there is only a 1% annual chance of regime change in Iran in any normal year, but it’s probably a little higher when the economy is in trouble.
Two bits of extra news suggest Iran is indeed very worried. The first was the announcement that it will enrich nuclear fuel beyond the 3% threshold within two weeks. And today they announced they shot down a US drone. If the tanker attacks were staged provocations (not by Iran) – I would not expect them to shoot down a drone.
So if the tanker attacks are by Iran – and the weight of other evidence suggests this is the case – then it looks like Iran is trying to send a message that it can make life difficult for everyone, by threatening the Straits of Hormuz oil route, raising tanker insurance costs, and so on.
That in turn risks the possibility of counter-action by the US.
There is a worst case scenario here of tension rising sending oil prices higher at a time when the global economy is already fragile (see the ECB and Fed these past few days). Not great for growth, and not easy for the Fed and ECB to respond to.
CONCLUSION:
By Robertson, Charles
FRI, JUNE 21 2019-theG&BJournal- I was very sceptical about the first “attacks” on tankers around the Straits of Hormuz a few weeks ago. The second attacks made me re-think this because there was one scenario that suggested Iran might indeed be responsible. The scenario is this … 1) Trade war and global slowdown sends the oil price lower, so 2) the US can withdraw the waivers that Trump granted to some countries in mid-2018 so they could still import Iranian oil (the waivers were granted because Brent oil rose through 70 and was heading to 80). While this would raise the oil price … the global slowdown implies it would not rise to 80 or more, levels which provoke Trump to tweet angrily at Saudi Arabia.
Iran’s economy is already in trouble – but in 2018 it produced 4.7m bpd and consumed 1.9m bpd – suggesting it exported 2.8m bpd. In 2017 it produced 5.0m and consumed 1.8m, implying exports of 3.2m so Trump maybe cut Iranian net exports by 11% in 2018. By contrast, Venezuela’s output fell from 2.0m in 2017 to 1.5m in 2018 – US pressure on Venezuela (or Vene economic meltdown) was more effective. It’s net exports went from 1.5 to 1.1m – down nearly a third.
Now if Trump can cut Iran’s exports by maybe 1m bpd ..or by roughly a third .. this will whack the budget, weaken the currency, send inflation higher and put pressure on Iran’s regime. It would imply Iran’s per capita oil exports dropping below Algeria’s level – and we’ve all seen what’s happened to Algeria in recent months.
Note our Revolutionary Nature of Growth work suggests there is only a 1% annual chance of regime change in Iran in any normal year, but it’s probably a little higher when the economy is in trouble.
Two bits of extra news suggest Iran is indeed very worried. The first was the announcement that it will enrich nuclear fuel beyond the 3% threshold within two weeks. And today they announced they shot down a US drone. If the tanker attacks were staged provocations (not by Iran) – I would not expect them to shoot down a drone.
So if the tanker attacks are by Iran – and the weight of other evidence suggests this is the case – then it looks like Iran is trying to send a message that it can make life difficult for everyone, by threatening the Straits of Hormuz oil route, raising tanker insurance costs, and so on.
That in turn risks the possibility of counter-action by the US.
There is a worst case scenario here of tension rising sending oil prices higher at a time when the global economy is already fragile (see the ECB and Fed these past few days). Not great for growth, and not easy for the Fed and ECB to respond to.
CONCLUSION: Winners from the negative news cycle, Russia, Kazakhstan, Nigeria, Gabon etc in the short—term. Their oil exports won’t be affected by tension in the Gulf, but the oil price will rise.
Charlie Robertson, Global Chief Economist Renaissance Capital|Twitter @Rencapman
|twitter:@theGBJournal|email: info@govandbusinessjournal.com.ng|
. Their oil exports won’t be affected by tension in the Gulf, but the oil price will rise.
Charlie Robertson, Global Chief Economist Renaissance Capital|Twitter @Rencapman
|twitter:@theGBJournal|email: info@govandbusinessjournal.com.ng|
