-Felix Douglas
The Centre for Petroleum Information (CPI) recently had its Petroleum Policy Roundtable to focus on current crisis leading to spike in crude oil and pump prices. Although prices have gone down but there are still skirmishes suggesting that the war may likely take some time between the US and Iran to be resolved.
The CPI event brought together stakeholders to deliberate on the issue discussing how it affects future of Nigeria’s oil especially the downstream sector.
The event emphasizes the role of CPI as the leading think tank for the energy industry in Nigeria.
Victor Eromosele, Executive Director of (ED) of CPI spoke on understanding the Middle East crisis and the impacts of Strait of Hormuz.
Eromosele submitted that the war between US and Iran is interesting; it takes a pause and starts again. The beauty about it is that some people are making billions of dollars from it.
When the war takes a pause, prices drop and if it reawakens, prices go up again.
Obviously, there are people who are really cashing out on it. “We don’t know who they are but the question is whether Nigeria is cashing out.”
When is good times Nigeria don’t cash out, if it is bad times the country don’t cash out as well. When do we cash out then?
Since February 28 when the war started, prices of items across the world have tripled. The Strait of Hormuz is an unlikely prophecy. It’s a risk that was already waiting to happen and it has happened.
Where do we go from here?
According to the International Energy Agency (IEA), it is the worst supply disruption in the history of the global oil market. “Let’s focus on these three: worst, history and disruption. Since it’s a historical worst, what did IEA do to address it?
What it did was to ensure that there was strategic reserve and 32 countries had to tap into that reserve. In total, they had 400 million barrels pulled in. Otherwise countries like Japan that depends exclusively on that Strait would have been dead, but it survived.
But the bad news was in 22nd of July. Next parallelism is Bab el-Mandeb Strait. Just as no one ever knew Strait of Hormuz is equally the gateway into the Red Sea. This one is even worse than the Strait of Hormuz because Bab el-Mandeb passes through the Red Sea to Europe.
It’s an issue to go to Europe because a few ships have been blown up. The road to move to Lagos and Africa has to do with many routes not to think of Europe. The result is that the cost will increase further and prices go up.
Eromosele added that the US-Israel bombings of Iran in February 28, within one week, couple of things happened. First, the leader was eliminated and same week, 167 kids were killed. Although the death of the kids is still being investigated.
It was six weeks of hostilities and oil prices increased to $120 it almost hit $200 before the war paused for six weeks ceasefire. After three weeks, fighting resumed again.
Speaking further, the CPI ED said seven weeks followed between April 13 and June 8, UAE surprisingly, withdrew from OPEC and 4.5 million was subtracted from OPEC.
Ceasefire Compromised
The resumption of US bombing in July 8 and 9 also coincided with the burial of Ayatollah Khamenei. The funeral attracted about 30 million people including Iranian perceived enemies around the gulf.
Across the region in July 21, the Houthis attacked two ships and Egypt that was not part of the war was affected. This was followed by Iraq and Saudi Arabia leading to a widening dispute in the Middle East crisis.
It’s all getting extremely complicated. For how long will this go on? No one knows.
Why Strait of Hormuz is important because 20 to 25% of the world’s supply goes through it as well as LNG. Qatar is also affected including other countries producing gas and fertilizer.
The trouble has been exported to the entire world.
Iran imposed tolls on vessels. If any country brought a 2 million barrel VLCC it will pay $2 million.
“Can you imagine how much money they would have been making? If 10 ships pass that’s $20 million for just a day.”
An asymmetric war hitting friends and foes
Saudi Arabia is the world’s second largest producers with 4.5 million, Iraq, Bahrain are also producing oil. But Qatar is a gas province.
Continuing, Eromosele added that part of the reason for the war is because the Strait is considered an international waterway. It is 21 kilometers. Iran considered the Strait of Hormuz as its territorial water.
However, Iraq, Kuwait, Bahrain and Qatar cannot export anything out without going through the Strait.
Today US courtesy of shale oil revolution, has 22.8 million.
Oil is definitely part of the question. Whenever US hit Iran, it goes after countries considered friends of America. Notwithstanding, Kuwait, Qatar and UAE were the worst hit.
Impact of Trump’s war of choice
Apparently, the whole world is affected by the war. In the first one month, oil spiked by about 70% which is why petroleum rise in Nigeria and pump price went up.
But it was not the same trend with fertilizer. It went 38% and further up to 91%. Why is the trend? Oil has strategic reserves, fertilizer does not and most of its business is concentrated in the Middle East.
Prediction before the war in the Strait
According to Dr. Swala Areweriokuma, a Political Economist, the Strait of Hormuz is one of the seven global choke points, policymakers and energy analysts have warned potential disruption of flow of about 19 million barrels of crude through that strategic waterway.
How did it affect Nigeria?
About 1,800 export containers are stuck at the time of compiling this report in Apapa and they can’t go anywhere because of the crisis. Distant crisis is having effect right at home.
In the face of escalation and broken ceasefires, is it a forever war scenario? Everyone thought the crisis in Ukraine was going to be for a short time but it is still on.
Comment here