Vandana Hari Shares Ramifications Of Israel-Hamas War On Crude Price
What’s the impact of #Israel-#Hamas war on crude prices?
In conversation with Vandana Insights’ Vandana Hari. #BQLive
In conversation with Vandana Insights’ Vandana Hari. #BQLive
Transcript
00:00 The weekend saw an unexpected and massive attack by Hamas militants into Israel, one
00:08 that hasn't been seen in at least 50 years, with at least 3,000 missiles raining into
00:15 Israel.
00:16 There were incursions by land and by sea as well.
00:20 A counterattack has begun and it's looking like a full-blown war in a very, very tumultuous
00:27 region once again.
00:28 Now the question is, what's going to be the impact on crude?
00:32 We've already seen an initial spurt of crude prices, 4 to 5 percent, in Monday morning
00:38 trade.
00:39 But can this sustain?
00:40 Is this a long-term worry?
00:42 Where are we going to go from here?
00:44 To speak on all of this and more, I'm joined now by Vandana Hari.
00:47 Vandana, great to speak with you on BQ Prime.
00:51 Ash is one of the foremost voices on this space and we're hoping to get a perspective
00:56 of how worrisome these developments are.
00:59 Vandana, let me begin with your opening comments on what we've seen over the weekend and what
01:06 the worry is that we're seeing now.
01:07 And we're seeing crude prices jump up.
01:09 Is this a sentimental reaction more than anything else?
01:13 Good morning, Tamanna.
01:14 I'm glad to be back on your channel again.
01:16 So indeed, what we saw this morning in Asia when markets opened was a knee-jerk reaction,
01:23 which is quite typical in the market in the event of any sort of disturbance or a flare-up
01:30 in the Middle East, which is at the outset is pricing in the worst-case scenario.
01:37 So this is a conflict, as you were just mentioning, a war between Israel and the Hamas militants
01:43 in Palestine, which does not directly and has not impacted any oil or gas supply from
01:50 the region.
01:51 But the danger here is, well, first of all, it sits on the doorstep of a major oil and
01:56 gas-producing region, of course.
01:59 And the other major danger is that this is never just a bilateral conflict.
02:05 There are vested interests on both supporting both the sides.
02:09 So the danger here is what if this escalates into a wider regional conflict, which then
02:15 obviously does carry a risk to oil and gas supply.
02:20 Every third barrel of oil that the world uses comes from the Middle East.
02:24 And we have seen over the past several years, even decades, that every time tensions in
02:30 the region rise, especially between Iran and its Arab neighbors, oil does get affected.
02:37 We've had massive outages in Saudi Arabia in 2019 when the Houthi militants, who are
02:44 also said to be backed by Iran from Yemen, had attacked Saudi facilities.
02:51 And then you have the choke point of the Strait of Hormuz.
02:54 So this is what the market is factoring in at the outset.
02:57 But again, as you just mentioned, after the first knee-jerk reaction, it seems crude has
03:02 pulled back a bit.
03:04 I think if the situation remains limited to the Israel and Palestine area, then we will
03:14 probably not see any impact on oil and prices should continue to cool back a little bit.
03:19 If we are seeing a limited sort of range of this war, of this conflict, Vandana, what
03:25 are the kind of levels we're looking at?
03:28 Because this, obviously, we have to contextualize.
03:30 It comes after a week of a lot of volatility as well.
03:34 There were concerns about stocks running out and then prices went up and they cooled off
03:39 quite dramatically.
03:41 So what are the kind of levels you're looking at if this remains a relatively more localized
03:47 zone of conflict?
03:49 Yeah.
03:50 So right now what has happened is that this conflict has pretty much elbowed everything
03:56 else out of the stage.
03:58 This is where the oil market is focused.
04:01 But what you will see as and when the dust settles down on this, and it may not be very
04:11 soon, it does look like this could rage on for a few more days, in which case the market
04:16 will remain a bit on tenterhooks.
04:18 But as and when it calms down, we go back to the basics and the fundamentals.
04:22 So when you're looking at fundamentals, of course, we saw a run up in prices about 10
04:28 sessions ago.
04:29 Brent was $97.
04:31 And then we saw a massive slump last week, which was basically on renewed fears of what
04:38 the spiking bond yields, higher for longer interest rates by Fed might do to the US economy.
04:45 So in the background, shall we say in the wings, these factors remain in place.
04:51 One of them, obviously, on the supply side is deep OPEC plus cuts, nearly 3 million barrels
04:56 per day, the deepest they have cut since the 2020 COVID crisis on the supply side.
05:02 And on the demand side, not very tangible evidence of demand destruction, but fears
05:09 that demand may come down because of high prices and a proxy for demand, which is the
05:16 economic sentiment globally.
05:17 So we will see those factors gradually coming back into the driver's seat.
05:22 But for the next few days, perhaps, I think the focus will remain on the fears of the
05:29 Middle East getting sucked into this.
05:32 What are you reading from the official statements and responses that have come in from major
05:38 oil producing nations so far to this conflict?
05:41 We saw Saudi Arabia, for example, of course, condemning the violence, but also contextualizing
05:47 it saying that this has happened because of the occupation of Palestine.
05:52 A similar tone and tenor from major oil producing nations.
05:56 How do you see that panning out?
05:58 Do you see that impacting any kind of oil production decisions in the future?
06:03 Because we know this has happened in the past.
06:05 Yeah, great question Tamanna.
06:07 So the politics behind these long running tensions I've mentioned over decades, right,
06:15 in the Middle East, the politics go very, very deep.
06:18 The politics are also not static.
06:20 You know, it's been quite a situation of flux, but it's quite a dynamic change.
06:26 And, you know, in recent days and weeks, you'll recall there has been a lot of talk of Saudi
06:32 Arabia, for instance, normalizing relations with Israel, you know, at the behest of the
06:38 US, which has been a major sort of broker between this.
06:42 Saudi Iran relations have also been, there have been attempts to normalize them a bit.
06:49 Iran-US relations also have gone through a lot of ups and downs.
06:54 And so we have to keep this in mind that none of this is static.
06:57 But what does remain at the backdrop of all of this is that, yes, there are tensions,
07:04 very long running political and religious even rivalries in the region, right.
07:10 But as far as OPEC+ is concerned, we saw a statement come out of Riyadh on Sunday where
07:16 a few regional oil ministers were meeting, and they said that no change as of now in
07:24 their production targets, but they made a sort of a generic sort of statement that we
07:30 stand ready to act if needed to stabilize the market.
07:35 So OPEC's rhetoric has remained the same, that they do feel the need to continue cutting
07:42 back output because they think demand may not pan out as expected.
07:48 But as of now, I think it's going to be a wait and watch situation in all the countries,
07:52 whether they're directly or indirectly affected by the situation.
07:56 But as far as OPEC+ and production is concerned, I don't see them making any changes anytime
08:02 soon.
08:03 There'll have to be a very good reason for them to make a change on their production
08:07 targets.
08:08 Let me get your perspective on Iran and its role as an oil producing nation.
08:14 Now Iran, post the Ukraine-Russia war and Russia and Russian oil being shunned, did
08:20 get a sort of a fillip to its own oil production and exports.
08:25 How do you see that now playing out with Russia in the bad books, so to speak, Iran back in
08:32 the bad books?
08:33 And what does that tell us about global inventory levels and production capacities?
08:39 So Tamanna, great question.
08:42 That is more the longer term ramifications that I alluded to at the start.
08:49 So this is, again, I think that this is something which is very hard for the oil market to decipher
08:55 or to assess with any degree of confidence that this is how it's going to go.
09:00 So there has been quite a bit of speculation.
09:03 Let me just backtrack very quickly.
09:04 So yes, indeed, Iran, Iranian oil production has risen to five-year highs.
09:09 Their exports have risen.
09:10 Their production is almost at 3.2 million barrels per day now, which is the levels that
09:15 were last seen before the Trump administration reimposed sanctions on them.
09:21 But as far as US-Iran relations are concerned, which I just mentioned, had been warming up
09:28 a little bit.
09:29 So yes, they may go south again.
09:33 But whether as a result the US begins to tighten the implementation of sanctions or not, there
09:40 have been suggestions that the US might, as a sort of a repercussion for Iran being thought
09:49 to be behind this Hamas attack on Israel.
09:51 But I think a lot of things up in the air still, whether the US does it.
09:55 So you have to keep in mind also that the US would not want to take any steps right
09:59 now that further escalate this conflict, push Iran into a corner, or make price or reduce
10:07 the global supplies.
10:08 As you just mentioned, Russian supplies are already a little bit tentative.
10:13 So the US wouldn't want to take any such steps.
10:15 So you have to keep that in mind as well.
10:16 I think it'll be a wait and watch for the market.
10:19 What about the Indian sort of point of view over here?
10:25 We import from Russia, we import from Iran, we're heavily dependent on imported crude.
10:31 And of course, prices going up is bad news for us.
10:34 We don't know how long that will last.
10:35 But from the Indian point of view, how does the picture look right now?
10:39 Yeah, the good news, Tamanna, is that India has a very important voice on the world stage
10:45 now.
10:46 Just two weeks ago at the ADEPEC conference in Abu Dhabi, we had the Indian oil minister
10:53 convey very, very clearly to his counterparts in the OPEC-plus producing countries that
11:01 Indian consumers' pain point is around $80 per barrel crude.
11:06 Now that was, of course, coming days after Brent had been around $97, which is clearly
11:12 quite debilitating from the perspective of inflation, as well as the drain on the exchequer
11:19 as India imports more than 80% of its crude.
11:23 So look, I think the voice is being heard in the Middle East.
11:31 And I think the Middle East is also paying very close attention to the other steps that
11:35 India is taking to reduce its dependence on oil, right?
11:38 So to go more into renewables, into biofuels, and so on.
11:44 So all of this is being very closely watched.
11:46 So I do feel that despite the very hawkish rhetoric that tends to come out from Saudi
11:51 Arabia or other Middle Eastern oil producers, I think they will keep their ear very close
11:56 to the ground on the more price-sensitive economies, which are now the biggest markets
12:01 and biggest growing markets.
12:03 They cannot ignore it.
12:04 Well, let's hope for the best.
12:07 Like you said, wait and watch is the mode that we are in right now.
12:11 Thank you so much, Vandana Hari.
12:12 Always a pleasure to speak with you.
12:13 Thanks, Tamanna.
12:13 Thanks, Amit.
12:14 Thanks, Vandana.
12:14 Thanks, Tamanna.
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