Analysis by Energy Workforce President Tim Tarpley
On Monday, Saudi Aramco’s Jazan refinery located close to the border with Yemen was struck by the country’s Iran-backed Houthi rebels. As of this writing, the extent of the damage is being evaluated. This comes after a flurry of activity (from both sides) over the weekend. On Sunday, Iran’s Supreme National Security Council said the country was preparing to announce an “exclusion zone” to prevent ships from entering the Strait of Hormuz. Meanwhile, Iran and the US continued to trade low-level strikes. These strikes have been consistent but are much lower in intensity than in the weeks before the conflict. On Tuesday, Iran also claimed that it had captured a US unmanned submarine at the mouth of the strait but has so far yet to release information backing up this claim of capture.
On top of these developments, OPEC over the weekend announced that it had agreed to keep oil production unchanged in October from September after increasing output for six months in a row. Brent crude has been hovering right below $100 on the news. What does this mean for us and for the US election? First, as we move into September, it is becoming less and less likely we will see any settlement in the conflict or a resulting settling of oil prices before the election. With early balloting starting in a month and a lag time between any de-escalation and a change in oil prices, the fact is time is running out if it hasn’t already. It also means that the conflict is very likely to drag on at this low level for many more months.
The Iranians are acutely aware of the pending election timeframe and know the US side may be unwilling to undertake a large-scale escalation before the election, so they have some incentive to keep trying to maintain this lower level for some time. The election outcome could also pressure the US side to wrap things up as soon as possible after the election; if the House and/or Senate do end up flipping, the new Congress will certainly be more aggressive in pushing back on appropriations to fund the conflict. This could lead to further action on the US side post-election, depending on the outcome.
Overall, oil and gas activity is limping along in the Middle East with major service companies representing around a 10% decline for Q3. Further attacks on energy infrastructure, or a significant escalation with cross-border attacks in multiple Gulf states, could increase this disruption and certainly cause operators to hold off on large new deals until they have some certainty about long-term stability.
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.
