Business, Economics and Jobs

Middle East tensions to drive oil prices higher


A general view shows an oil installation on the outskirts of In Amenas, Algeria, deep in the Sahara near the Libyan border, on Jan. 18, 2013.


Farouk Batiche

A "crescent of chaos" emerging from the Middle East and North Africa (MENA) region and tensions with Iran could lead to a dramatic turnaround in the price of oil, according to Nomura's analysis.

Brent crude, which fell to an eight-month low last week on weak US jobs data, is set to climb following Iran's presidential election in June, the firm said in research published on Tuesday.

Brent crude, which has spent the vast majority of the last two years range-bound between $105 and $120 per barrel, surged close to a two-year high when civil unrest broke out in Libya two years ago, but Iran now poses the biggest threat according to senior political analyst Alastair Newton.

"It would be wrong to single out Iran to the exclusion of all other drivers of the price of oil in the MENA region, however, it has certainly been the most important," said Newton.

"Notably, in March 2012 Brent spiked to $128 [per barrel], driven by concerns that Israeli prime minister Benjamin Netanyahu would order a strike against Iran's nuclear program during the favorable weather conditions which prevail in the region from January to April," he added.

"Once the Iranian presidential election process is over – and especially if talk about a decision on military action being needed in October persists – markets may see an increasing risk of an early strike against Iran which could start to push up oil prices accordingly," said Newton.

Iraq, may also pose an additional risk to the oil price, however oil production in Iraq is improving and is up around 50 percent since 2002, according to the research.

"Despite these security issues, which make for a challenging investment environment, at around 3 [million barrels per day]oil output is already up by about 50 percent since 2002 and the International Energy Authority (IEA) forecasts (conservatively) 6 [million barrels per day] by 2020," said Newton.

"That said, we continue to believe that persistent security-related concerns do act as a disincentive to investment in new output, even though the arguably unique opportunities which Iraq's massive oil reserves present remain very attractive to foreign oil companies," he added.

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