Oil in Global Economy Series: Millions of barrels under Geo-political risks

The global oil market has so far has overlooked the geopolitical risks hovering shadow over millions of barrels of oil while focusing on supply/demand fundamentals. However, at a time when global inventories are in decline and the market is becoming closer to balance, geopolitical risks pose the greatest threat to oil bears. 

• Iraq-Kurdistan conflict: Everyday, the region of Kurdistan supplies 0.6 million barrels of oil per day to the global market. Since Monday, Iraq has launched military operations to gain back control of the disputed regions, now claimed to be part of Kurdistan. So far, Iraq has taken control of key oil assets in Kirkuk with little resistance from Kurdish Peshmerga fighters but a sustained fighting could put a lid on supplies from the region.
   
• Libya-Nigeria-terrorism: Since the beginning of the year, oil production from two-exempted (OPEC supply deal) countries of Libya and Nigeria increased production by more than 0.8 million barrels per day. But the production remains under constant threat from terrorists, who have disrupted supplies many a time over the course of the year.
   
• Venezuela-U.S. conflict: Earlier this year, U.S. imposed sanctions against Venezuelan President Nicolas Maduro and the country’s oil industry. This additional burden risks weakening the Maduro government, which is facing triple-digit inflation, severe famine, and unrest. A breakout of civil war in the country puts 2 million barrels per day production at risk.
   
• U.S.-Iran conflict: Since the removal of sanctions on Iran after Iran reached a nuclear agreement with six world powers back in 2015, the production increased by almost 0.8 million barrels per day. Recently, the U.S. President Donald Trump refused to certify Iran’s compliance with the agreement which puts the whole deal in jeopardy and risks re-imposition of sanctions on Iran and once again dry the additional supplies.

We have not included the geopolitical risks on important maritime routes such as the Suez Canal and Strait of Hormuz, Bab-el-Madeb through which almost half of maritime crude tankers pass every day.