Oil prices soar amid war fears |09 January 2020

• US airstrike on Iranian general sends red alert on markets

Oil jumped to $70 a barrel following the killing of a top Iranian general in Iraq last Friday. This news immediately sentshockwavesacrossalloilmarketsintheworldwithfearsofwaremergingintheworld’smostimportantoilregion with Teheran warning of retaliation.

TheoilpricesinSeychelleshaveremainedrelativelystableforthepastweeksandevenmonthswithmotoristspaying constantly unchanged rates per litre at the pump. But the recent military boil-up between Washington and Teheran is likely to put an end to this situation. Many energy analysts and political commentators have termed the recent US military action as an inconsiderate, electoral and unilateral decision by the unpredictable US President. This hawkish lash out at Iran is now provoking very high tension in the Middle East and which could lead to brutal reactions on the part of bothcountries.

Even before any significant retaliations from Iran and further attacks by the US, the oil market has started to suffer collateraldamagewithpricesbecomingfeverish.“Thisisthefirsttimeinfourmonthsthatthereisadisruptioninglobal energysupplies,”SarahRomain,generalmanager–commercialatSeypec (Seychelles Petroleum Company)explains.“Itmustbenotedthataboutafifth of the global oil supply flows through the Strait of Hormuz, a narrow shipping route between Oman and Iran. It was targeted last year by Iran, which seized two oil tankers in thestrait.”

Fears of war

While no oil installations or production were affected, the attack on the Iranian military heightens tension and raises fears of an armed confrontation that could pull in other countries. This is an aggressive show of force and an outright provocation could trigger another Middle East war. It is feared that US-Iran tit-for-tat could spiral out of control and create a seismic event in this already sensitive region. Iran will also likely resume harassment of commercial shipping in the Gulf, and may launch military exercises to temporarily disrupt shipping.

Seychelles on alert

In Seychelles, the national petroleum company Seypec has already pressed the red alert button. The company is monitoringthesituationinthegulfareasincetheseriousincidentsinvolvingtheUSandIran.“Wemustbeveryfocused on the evolution of the current events in the Middle East as all our fuel imports are shipped from this region,” Mrs Romain adds. “Any upsetting elements in the supply chain will automatically affect our position. As regards the prices, we are unfortunately at the total mercy of the international market. We can only hope that this dangerous chain of events will calm down and prevent another brutal surge of the oilprices.”

Motorists in Seychelles have been offered some quite stable prices during these last few months as regular weekly pricespublishedbySeypecshowed.Sincemid-September2019uptothisbeginningoftheyear,pricesofmotorgasoil hasremainedinthemid-R18range.ThelastpricechangeforthisproductwasonMondayDecember 30, 2019with pump price set at R18.60/litre. “This is the price of the stock we purchased before the US attack. Our future buying willnowbedirectedbythepotentiallynewhighpriceswhichshallhavetobeappliedinthecomingweeksasandwhen theconsignmentisusedup,”MrsRomainstates.“Intheworstcasescenarioofawarsituation,wehavealreadytaken the lead to find a temporary alternative for our supply from Singapore. This would guarantee the seamless import of all our fuel products without any disruption or shortage. But this would also mean an increase in our landed cost as compared to the one we usually pay in normal time from the MiddleEast.”

Looking forward with concern

ThedangerousrisingtensionsbetweentheUSandIranarelikelytosendpricesevenhigherinthecomingweeksunless somesortofeasingpoliciesareadoptedbythetwocountries.Ifnot,oilpricesareexpectedtorisefurtherasmarkets would retain at least some risk premium. A prolonged oil price surge would also raise the risk of a global economic recession. Already in September last, oil prices saw a record surge after attacks on two Saudi Arabian facilities briefly slashed output in the world’s top exporter by half. At the time, Donald Trump blamed Iran for the attack and previous other blasts on tankers in theGulf.

Contributed by Seypec