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The global oil market and its leaders
2018 had seen oil prices buffeted by bullish and bearish influences with oil prices seesawing from $66.87 a barrel on the first day of the year, to a high of $87 in early November then slumping before Christmas to a disappointing $54.10.
Who gets what?
But there were other forces at play that significantly influenced the price of oil in 2018. These forces were personalities whose decisions, utterances and in some cases farsightedness impacted directly on oil prices and the global oil market and may equally do so in 2019 as well.
Within the European Union (EU), one of the key aspects of its energy strategy is to ensure the security of supply. This objective was introduced in the 2007 Lisbon Treaty, in its article 176A:
“The Union policy on energy shall aim, in a spirit of solidarity between Member States, to ... ensure security of energy supply in the Union” (1).
As a significant portion of the energy consumed in Europe is imported from Russia, it is crucial for the EU to reduce its dependency. The Lisbon Treaty vows to procure to the EU a roadmap to build a resilient energy network within its territory, as well as to diversify import channels.
The evolution of battery-powered vehicles
The coming of battery-powered cars has a long history. In 1799, the Italian Alessandro Volta established the scientific principles regarding storage of electricity in electrochemical form by putting two different types of metals—electrodes and the electrolytes—into contact, which led to the creation of the first electric cell. In 1859, the French physicist Gaston Planté developed the first acid battery. Electric vehicles (EVs) appeared with the advent of the automobile and accounted for one third of vehicles in the United States in the 1900s, before being displaced by more competitive internal combustion engines (ICEs) (1).
In recent years, there has been a rekindling of interest in EVs, as governments look to tackle carbon emissions from transportation sectors, contributing over 20% of total global emissions (2). The quest for energy independence and technological ownership are also factors driving government support for EVs (3). Norway and California have implemented subsidy programmes towards such ends. The United Kingdom and France have recently announced that they will ban the sale of fossil-fuel automobiles after 2040.
Last month Saudi Aramco hit the news when it was named as the world’s most profitable company with revenue of $224 bn, a net income of $111 bn and a free cash flow of $86 bn against a total debt of $27 bn in 2018.
There was a lot of fanfare about Saudi Aramco created by investment banks which benefited hugely from Saudi Aramco’s launch of a major bond issuance to help finance its acquisition of 70% stake in Saudi petrochemical Basic Industries Corporation (SABIC).
The shift from the pure commodities to the Value-added services (VAS) in the Smart Cities.
All industry players are migrating to innovative services; Power and Gas providers to the energy monitoring, Telcos to the smart home services, device producers to the smart devices. These sectors (VAS) are more and more overlapped. Let's consider the offered range of VASs of an Energy provider, a Telco or a device producer...they are mostly the same.
Despite efforts by John Bolton the hawkish neo-conservative National Security Adviser to President Trump and Israel’s Prime Minister Benjamin Natanyahu to push the United States to go to war with Iran, war is neither an option for Iran nor for the United States.
Iran is not seeking a war with the United States but it will retaliate if its crude oil exports were prevented from passing through the Strait of Hormuz. And while it will be virtually impossible to block the Strait completely, Iran can nevertheless mine it and wait for an oil tanker loaded with oil to hit a mine. That alone could deter oil tanker owners and insurance companies from sending their tankers across the Strait. Alternatively, Iran could threaten to sink an oil tanker. That could have the same effect like mining the Strait.
The great rivalry between the United States and China will shape the 21st century. It is a truth universally acknowledged that a great power will never voluntarily surrender pride of place to a challenger. The United States is the pre-eminent great power. China is now its challenger.
The escalating trade war has been casting dark clouds over the global economy creating uncertainty and depressing the global demand for oil and therefore oil prices.
The War on Iraq in 2003
Almost seventeen years ago, a group of neoconservative hawks among them John Bolton, President Trump’s current national security adviser, persuaded President George W. Bush to mount a quick invasion of Iraq because, they alleged, it had “weapons of mass destruction.” That decision, based on dubious intelligence and taken against the advice of many of America’s closest allies, triggered a huge refugee crisis, destabilized the entire Middle East and cost the global economy an estimated $12.584 trillion of which the US economy’s share was $6.52 trillion according to a research paper titled: ”The Oil ’Price Rise’ Factor in the Iraq War: A Macroeconomic Assessment” I wrote and was published by the United States Association for Energy Economics (USAEE) on the 4th of June 2008. Moreover, nearly 5,000 Americans lost their lives in Iraq with hundreds of thousands more injured and receiving lifetime disability compensation.
Lest We Forget
The Suez crisis of 1956 was such a momentous event for Great Britain that it reduced a great and proud country from a major player on the international stage to a second rate power, caused its economy to shrink and devalued its currency.