Oil Price in 2021: evolving Middle Eastern politics still weighs heavily on it!

 

Crude oil price - 2021

Global crude oil markets, which saw a highly tumultuous days during the week, finally reached an uneasy equilibrium by the weekend, with the price of WTI and Brent reaching $72.07 and $74.10 respectively.

Exactly a week before to date, Prince Abdulaziz bin Salman, the Saudi energy minister, supported by the mediation of Russia, managed to reach a deal to overcome an impasse over a baseline,  with the UAE.

While refusing to divulge the details, Prince Abdulaziz, the half-brother of Saudi Crown Prince, Mohamad bin Salman, said that consensus building was an art, referring to the success of repairing a major rift in the OPEC+; not only did it show the influence wielded by the Saudis in the OPEC+, but also their tendency to exercise flexibility when the need arose.

Just after the deal, the Crown Prince of Saudi Arabia and his counterpart of the UAE met in Riyadh, the Saudi capital, perhaps, in order to iron out a catalogue of other burning issues that sprang up in the aftermath of the OPEC+ impasse: the restrictions imposed by the Saudis on the exports from their neighbour, the UAE and banning construction companies from operating on the Saudi soil, unless they have their headquarters are there; in addition, over Yemen, the two sides have come to a point that where a path of divergence is in sight.

The unexpected spat between the influential Middle Eastern neighbours rattled the crude oil markets to their core: they usually see eye to eye on many issues; they are united against Iran and were instrumental in imposing an embargo on Qatar, a few years ago; they are the key players in fighting against Houthi rebels, clearly backed by Iran – in evolving circumstances, though.

None of the regional threats identified by the UAE and Saudi Arabia has gone away. On the contrary, they are becoming more challenging for the countries in question by the day.

Even on Saturday, Saudi defences intercepted four explosive-laden drones and a missile aimed at its oil facilities in the southern region of the Kingdom.

Although they were destroyed, the ominous threat remains as alarming as ever before.

Against this backdrop, the head of the GCC, Gulf Corporation Council, poured cold water on the anticipated progress of reviving the JCPOA, 2015 Iranian nuclear deal at a virtual conference held on Saturday; he said that the Iranian ‘meddling’ in Lebanon, Syria, Iraq and Yemen must be taken into account by the signatories to the deal, before reaching a final outcome.

The consistent position held by the Sunni Arab nations in the region, except Qatar, along with Israel against Iran may push the US into a difficult corner when the talks resume shortly in Vienna.

There have already been six rounds of talks – with a few false dawns. The indications are the new administration under the incoming president Ebrahim Raisi will start the next round of talks in Vienna, hoping for the ultimate breakthrough over a spectrum of false dawns.  

Iran was dealt a severe economic blow by the Trump administration: President Trump had been imposing new sanctions at regular intervals as if he was tightening a screw, in proportion to the scale of perceived Iranian threats he was feeling at a given time. He didn’t even spare the Supreme Leader!

The sanctions took its toll on the Iranian economy as its main revenue source could not find buyers. Iran may have sold some oil by stealth, but it was not a substitute for legitimate selling, because the reluctant buyers do not want to be on the US radar for all the wrong reasons and be exposed to greater risks.

The severe drought in some regions of Iran that resulted in critical water shortages, meanwhile, is causing civil unrest; frequent power outages bring very little consolation to the masses who fight for the survival in the sweltering heat.

That means the incoming president, Ebrahim Raisi, has too many priorities already on his plate. The Supreme Leader has already identified the issue of the water crisis as something that should be at the top of his agenda; some deaths have been reported among both protesters and security forces due to crises.

Without reaching a deal on the JCPOA, the ground realities will compel the new president to stare into the abyss of uncertainty.

In this context, Mr Raisi’s perceived trait of pragmatism will face the first acid test next month by the way he deals with the JCPOA, as his administration take office.

Even if he manages to wriggle out of it, the growing instability in Lebanon in the middle of a catastrophic economic crisis, rising ISIS activities in Iraq and of course, the economic crises in Syria and Iraq, will pose more acid tests for him in a matter of months, not years.

In short, Mr Raisi will be in a perpetual crisis-management mode from the very first day in office, because they are real and have the potential to cause serious ripple at the heart of any administration, something that the religious – or political - conservatism could hardly offer any insulation against.

 

 

 

 

 

 

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