When gas prices spiked to a record high of more than $5 per gallon in June, analysts and politicians were quick to blame Russia’s invasion of Ukraine.
The Biden administration even called fuel prices skyrocketing after the conflict “Putin raises prices“At that time. However, in the months since, gas prices have dropped by about 26%, even during the war continue to escalate.
Now, researchers from an alternative wealth management platform called ClockTower Group are arguing that the Russian war isn’t the biggest risk to the pump’s recent price drop – Iraq is so.
Marko Papic, chief strategist at ClockTower Group, notes that the US is trying to bring Saudi Arabia increase its oil productionat the same time working to improve relations with Iran after the Trump administration left in 2015 Iran nuclear deal.
He argues that talking to both sides – which are well-known enemies – will only exacerbate tensions between the two regional powers, which could eventually lead to sectarian conflict in neighboring Iraq. , the world’s fourth largest oil exporter. And if Iraq’s crude production is affected by this conflict, oil prices are certain to rise, with gas prices following closely behind.
“The real risk to oil supplies is Iran-Saudi Arabia tensions, which are likely to increase significantly as the US tries to keep both sides happy,” Papic wrote in a Monday report and added that “Washington will have to choose one over the other.”
Bank of America derivatives and commodities strategist Francisco Blanch echoed Papic’s argument in a similar note on Monday, writing that he sees the price of Brent crude, the international benchmark, as mid-range. jar $100 per barrel in 2023 with “output disruptions” in countries like Iraq being a major upside risk.
A no-win scenario?
Papic believes the US may be in a win-lose scenario in the Middle East. He argued that if the US rejected Iran by accepting a deal with Saudi Arabia to import more oil, it would force it to retaliate against Iraq by supporting militias stirring up violence in the region. . He noted that Iran, on four separate occasions this year, has supported militias that have Launch rocket at refinery and attacked buildings near the US consulate.
He also explained that Iraq has traditionally served as a “buffer state” between Iran and Saudi Arabia, adding that Iraq’s oil hub city, Basra, has become the scene of Shia-on-Shia violence between Iran-aligned fighters and Iraqis this year.
“Currently, most investors are focusing on the Ukrainian attack in Kherson and Kharkiv as it relates to oil prices. Papic wrote. “However, the biggest risk to global oil supply could be the Shia-on-Shia conflict in Iraq… the negotiations over the nuclear deal. failure. “
Negotiations on an Iran nuclear deal are underway stone and unlikely to be resolved soon.
At the same time, if the US reaches an agreement with Iran, the world’s second-largest crude exporter, Saudi Arabia, “will definitely be affected,” Papic added. This puts the Biden administration in a damn-if-you-do, damn-if-you-no scenario.
“Our fear is that whatever America chooses, somehow, defeat will come on Iraq’s doorstep,” Papic argues. “Two regional powers fooling it into a conventional ‘buffer state’ is not something investors have to worry about. But this buffer zone has become the world’s fourth largest exporter of crude oil.”
Papic made the case that tensions between Iran and Saudi Arabia meant that “Iraq’s domestic politics would take on undue global importance” in the coming months.
“A civil war in the world’s fourth-largest oil exporter would certainly add to the already huge geopolitical risk premium,” he added.
While Papic does not forecast where oil or gas prices will move from here, he has argued that betting on oil for quick profits no longer seems a viable option for investors. .
“At the moment, we have no way to gauge how this will play out in the market. But with Brent [crude oil] He wrote:
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