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Global Tensions Rise, Oil Prices Stable for Now

Analysis by Energy Workforce President Tim Tarpley

Energy Workforce President Tim Tarpley

Over the weekend Israel started its ground invasion of Gaza to root out Hamas from the area and diminish its military capability to launch further incursions into Israel. The U.S. has responded by sending two aircraft carriers and their support ships to the eastern Mediterranean.

Iran stated that the ground incursion by Israel “crossed a red line” but so far, we have yet to see clarification as to what the Iranian response will be beyond their normal activities. Of particular note, Turkish President Erdogan spoke at a pro-Palestinian rally in Turkey where he sharply criticized Israel and appeared to open the door to greater Turkish involvement in the conflict. These statements came as a surprise to much of the world, especially considering Turkey is a longtime member of NATO. In response, Israel has begun the process of moving many diplomats from Turkey. Increased Turkish involvement could significantly complicate the situation and increase the chances of a larger conflict.

All of the uncertainty in the Middle East is compounded by the continuing conflict in Ukraine showing no signs of any sort of near-term conclusion. This all suggest that the world may be entering a period of significant instability, the likes we have not seen since the 1960s. So far, oil prices have remained relatively stable given the tremendous uncertainty shaking the world, as the consensus among many traders has been that it is simply too early to tell if a large supply disruption could occur because of the crisis.

There are also increasing concerns about the possibility of a global economic slowdown, which could counteract any supply disruptions to some extent. If Iran or other Middle East actors are forced to get involved, this perception could change rapidly, so we should all be ready for that potential. Of particular concern is the Iranian ability to block or disrupt commercial shipping through the Strait of Hormuz and the resulting supply disruptions.

Meanwhile back in the U.S., the super majors have been making some significant moves. In recent days ExxonMobil announced an acquisition of Pioneer Natural Resources for $59.5 billion, positioning the company as the top producer in the Permian. Chevron also announced a $52 billion acquisition of Hess Corporation which has major plays in the U.S. Bakken and Guyana.

These moves show us two things. First, the companies appear to be shying away from riskier bets in some overseas locations and clearly have a bullish outlook on American energy production. Second, it shows that the two majors are also bullish on the overall future of oil and gas demand, such that they are willing to place these big bets using profits gained over the past few years. Both are good signs overall to the health of the market. Many analysists continue to speculate that more announcements may be on their way in the coming months.

Tim Tarpley, Energy Workforce President, analyzes federal policy for the Energy Workforce & Technology Council. Click here to subscribe to the Energy Workforce newsletter, which highlights sector-specific issues, best practices, activities and more.



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