Insecurity of Oil Stakeholders Will Grow

Everlasting Geopolitics

The number of countries involved in the global oil economy and the tremendous impact oil can have on their economic well being has made the global oil market a high stakes venue for governments to encourage developments that benefit their domestic interests. We call this the geopolitics of oil; countries making political, military or economic decisions that reach across borders, oceans and continents to influence the flow of oil. The supply shocks of the 1970s, the reflagging of tankers and Gulf Wars of the 1990s and early 2000s, the dismantling of PdVSA, civil wars, and perennial OPEC production agreements have intentionally, and unintentionally, influenced the oil market. In the last few years, however, geopolitical actions have narrowed to unilateral, uncoordinated economic arm-twisting.

Economic Arm Twisting

In the 1990s and early 2000s, international economic sanctions related to oil were the domain of the U.N. Security Council.More recently, the U.N.S.C. imposed sanctions on Iran’s nuclear development until the five permanent members of the Council and Germany (the P5+1) negotiated their lifting in 2015, bringing Iranian oil back to the market. This episode of imposing sanctions, granting waivers to sanctions and then eventually lifting sanctions on Iran may have set the stage for President Trump’s more fulsome use of sanctions following his election in 2016. The U.S. has put unilateral energy-related sanctions on Iran, Russia and Venezuela. Moreover, through the threat of secondary sanctions on companies that conduct business with these countries, the U.S. has used the ubiquitous power of its financial markets to arm-twist additional countries into changing their behavior in the oil markets.

Along the way, the U.S. has helped normalize unilateral action by other countries. For a while Saudi Arabia stifled Qatari trade in the Arab Gulf. Russia, Saudi Arabia, Iran and Turkey have supported combatants in civil wars in Syria and Yemenas proxies for conflict between themselves. Russia, Egypt, the UAE, Turkey, France and Italy have each claimed a stake in the resolution of the Libyan civil war, essentially by-passing the U.N., and reflecting their interest not only in the leadership of Libya but also the country’s natural gas and crude oil resources. The U.S. trade war with China is another form of arm-twisting with impact on oil. The early stage resolution of the trade war includes massive purchases of U.S. oil by China. The collapse of the multilateral OPEC+ collaboration was the handiwork of Russia, then Saudi Arabia.

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