Geopolitical tensions identified as key risk to oil prices in 2018

Areport by Verisk Maplecroft, a global risk analysis company, identified conflicts involving Iran and North Korea as two major risks to the oil market this year. A conflict on the Korean Peninsula would pose significant threats to global oil demand, while surging tensions between the US and Iran present supply-side risks.

The report highlighted the stand-off on the Korean peninsula and the ongoing ‘cold war’ between Saudi Arabia and Iran as the only two geopolitical flashpoints with realistic potential to impact oil prices if they escalate this year.

“A slide into war is not in the interests of any of these countries, but the outlook highlights the aggressive posturing from all sides as intensifying the chances for tensions to escalate,” Verisk said in an organization statement.

“In the worst-case scenario, war between Saudi Arabia and Iran would hit oil supply and cause a spike in prices, while conflict on the Korean Peninsula would have serious negative consequences for the global oil and liquefied natural gas trade,” Verisk added.

Outright war in either region is unlikely, despite an increase in the probability of some form of military incident or show of force between the US and North Korea, which Verisk says has increased from 36 percent to 56 percent since the start of 2017. The likelihood for a direct militarized dispute between Saudi Arabia and Iran is lower at 26 percent.

According to the report, government instability is set to rise over the next three years in oil and gas producing countries including Russia, Kazakhstan, Egypt, Kenya and Uganda, which could impact the upstream projects of major energy companies.

Curiously, Nigeria was not mentioned as one of the flash points in the report despite recent threat by Niger Delta Avengers warning the federal government to brace up for another round of attacks it would unleash on oil and gas facilities in the country. The group had said it would be targeting the deep sea operations of the international oil companies (IOCs) and others littered across the deep waters of the Niger Delta region.

FRANK UZUEGBUNAM