While the threat of an Arab oil boycott roils market, maritime trade threats are not seen

Instability in the Middle East is again rocking energy and investment markets, as all are watching a potential regional war to happen. The outcome of the Israeli military actions against Islamic terrorist organization Hamas, and its supporters, is clear, without a direct threat to outside stability. However, the call of a renewed confrontation with Israel, even the full destruction of the Jewish State, is back to be heard on the Arab street. The latter is even being pushed by non-Arab players, especially Hamas-backing Iran and its proxies, while Arab presidents, kings and sheikhs are struggling to find their own footing. Western markets are aware of the developments, but seem to be only listening to media sources, or official statements of parties involved. As the whole media debacle around the so-called Israeli missile attack on a Gaza hospital, according to mainstream media killing 500+ Palestinians, has shown the facts are blurry or outright false. However, Arab media are less prone to fact-checking, they listen or form the Arab street, even threatening the domestic security and stability at the same time.

The last days minimal attention has been given to the rather muted reactions coming from leading Arab countries, such as Saudi Arabia, UAE or Egypt, with regards to their own position-taking in the Palestinian-Hamas conundrum. ?The reactions are leading as always, no Arab regime could even be critical or skeptical about the culprits behind the hospital massacre, but still …very muted and cautious. The support to have their citizens vent their anger, even that it was misplaced and wrong,? was needed, as most regimes are still afraid of an Arab Spring 2.0 scenario. Egypt is in the center of the storm, as Egypt’s president Sisi is well aware of the still strong support inside his country for the Palestinian cause, but also knows that Hamas and other extremists are not favorites. Cairo still remembers the strong links between the Egyptian Muslim Brotherhood government and Hamas, Sisi’s military has been fighting against Hamas in the Sinai the last years. Underlying factors, regime considerations and geopolitics are playing their own strategies, while Westerners are blindsided or focused on the wrong issues.

At the same time, world media, and especially oil and gas analysts, started another frenzy when Iranian officials called for an oil boycott, not only on Israel but also on supporting states. The call from Tehran is historically interesting, as not only used Hamas the 50 years anniversary of the Yom Kippur War as start date for its massacre inside of Israel, but Iran now tries to revamp the Saudi instigated Arab Oil Boycott, which started October 17 1973. Fear of a possible new oil crisis, causing havoc in the Western world, or bringing further economic hardship to already struggling OECD economies returned for some days. Oil prices however reacted reasonably muted, as most started to realize that there is a total different global oil market place, with different powers in place. Some Arab countries also have called for an oil boycott on Israel, which again is going to fall flat as the latter can source its energy elsewhere.

While the oil and energy markets were looking at the options and threats of an Iranian-Arab oil boycott, reality is however totally different from the 1970s. At that time, Arab and Iranian oil production and supply was central to the global market. Without access to mainstream Arab crude oil, especially Saudi Arabia, but also Iranian supply, shortages were experienced very quick. In stark contrast to current market fundamentals, crude oil and petroleum product storage almost was not existing, so any disturbance in an already stretched market was causing direct havoc. The role of crude oil in the overall economy also was much larger.

These times have changed, Not only caused the 1973 Oil Crisis a shock to the system, forcing it to set up mitigation options for shortages in the future, but also it pushed for lower dependency of crude oil in the economy, aka less barrels per unit manufactured. For the old Arab OPEC situation, the oil crisis also crashed part of their own power at the same time. Higher prices, security of supply issues and changing economic factors, resulted in increased development of new oil and gas producing regions, such as offshore North Sea and others. A new oil embargo or full-scale oil crisis also will need full cooperation of OPEC or even OPEC+. At present, the former cohesion inside of the old oil cartel (OPEC 1973) is a thing of the past. Internal struggles of the cartel or alliance, as some state, are clear and visible. Main powers inside of OPEC are even at a war-footing, as national strategies are colliding, or geopolitical power projections constraining cooperation. Even that Saudi Arabia and Iran have reopened diplomatic relations, the latter doesn’t mean that Riyadh will be following a call for conflict with Israel from Iran. Riyadh’s future is still too dependent on access to financial markets and defense procurement options worldwide. This conflicts with a full-scale confrontation with not only Israel, but also the USA, UK, EU and others. All OPEC members love higher revenues, but most will need to spent them outside, mainly in the West. Security of most regimes is also directly linked to Washington or mainstream European countries. OPEC Kingpins also don’t want to lose their current pivotal position in oil, gas and renewables, where Western markets and technology will be key.

In the current situation, the main message to markets will be not to expect an oil boycott by Arab countries, combined with Iran. OPEC for sure will not be pushing for a further disturbance of the already fragile market.

What most analysts, politicians and investors however should be worried about is that an escalation in Gaza, or maybe combined with the West Bank, will entice Lebanese Islamic terror organization Hezbollah, holding more than 150,000+ missiles and a strong paramilitary power, to enter into a war with Israel. Hezbollah’s masters in Iran, which have both been surprised by the Hamas ‘success’ but also by Israel’s full-scale militarization and willingness to act, have already warned that Tehran will be taking part too. At present, as shown by US Navy reports from the Red Sea-Bab Al Mandab region, Iranian proxies already are involved, fighting Israel. A full-scale confrontation between Israel – Hezbollah -Iran should be the main worry for all. The latter will involve all other states too, as Shi’a extremists will take the streets in Iraq, Syria, and try to destabilize Saudi Arabia (Eastern Province), Bahrain and others. Without even destabilizing the whole region, which is most probably going to be squashed by the Arab regimes and its own forces, several weak points exists. Oil and gas analysts for sure will state Strait of Hormuz, but of main concern should be the East Med-Suez Canal region. For most maritime trade, the Red Sea-Suez Canal – East Med is the highway between Europe and Asia, with access to Southern Europe, NW Europe but also the Black Sea. Keep in mind, Egypt’s closure of Gaza is not out of support to Hamas, it is a simple military Egyptian move to quell any potential risks from Gaza, combined with extremists in the Sinai, to threaten the Suez Canal. Egypt, Israel and others, know the threats, but also the missile and naval capabilities of Iran’s proxies or even Russian forces in the region.

When talking about threats, the only real one for investors, operators and energy geeks, is the maritime routes, as the Middle East has not for nothing received this name. Who holds the power of maritime access in the region controls global trade. Using proxies or extremists falls well into power projections of some, looking at Ukraine, North Korea, Syria-Iraq or even Yemen. Israel is being used not only as a scapegoat to hide faults and mistakes of existing regimes the last years, but could now be a fog to move on another chessboard, much more dangerous to the future of the West than the destruction of Hamas.

International companies, banks, financial institutions and investors, should be focusing on the hidden moves currently being done. Energy, minerals, metals, investments and maritime access are the real key issues at risk. Most Arab regimes are not going to interfere in the Hamas issue directly, as the gains of access to the West (and Israel) are higher than assisting Palestinian extremists. Putting crude oil prices at risk by allowing Hamas, Iran and Hezbollah to hijack OPEC will not be allowed by Riyadh, Abu Dhabi, and most African producers. Even Venezuela is not going to budge to Iran, as Biden is holding up a major cookie right now, lifting oil sanctions temporarily.

The next days, weeks and months, assessments are needed to address new power plays, key-stake-holder moves, changing alliances and the role of US-EU-China-India-Russia in the region. Investors should for sure look at power plays, but also reassess their financial risks as a negative economic-financial spiral could be in the making. Instability has come out of the bottle, extremists are preventing now the Djinni to go back.

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