Geopolitical risk and economic uncertainty are likely to play an increasingly important role in determining oil prices and therefore will need to be managed effectively by oil and gas companies operating in the Middle East, according to Deloitte.
“Oil companies are being challenged in ways that weren’t readily apparent even a few years ago,” said Kenneth McKellar, Partner and Middle East Energy and Resources Leader at Deloitte.
“In today’s volatile environment, managing geopolitical risk will emerge as one of the key competitive advantages for the region’s oil and gas companies,” Kenneth added, in a latest report from Deloitte, titled ‘Emergence of the New Geopolitical Risk-Oil Price Paradigm’.
According to the report, there are a number of disruptive forces impacting oil prices, including the quest for better political and economic conditions. “Anti-government riots, which have originated in Tunisia and spread across North Africa, the Middle East, and the Arabian Peninsula, have sent the price of oil higher.”
“The recent unrest in Egypt had the potential for reducing traffic in the Suez Canal, one of the most important waterways in the world for oil and other commodities transport.
“Pirates have stepped up their use of captured merchant vessels from which to launch new attacks. This has increased their range up to 1,500 nautical miles and, as a result, their ability to target oil tankers.
“New governments formed in Iraq and Sudan sit on large oil reserves. Their decisions as to the size of their national crude oil reserves and how to develop those reserves are likely to change the oil production landscape, potentially resulting in production sharing agreements (PSAs) and new drilling permits for future exploration.
“The growing production of unconventional gas throws into question the economics of many liquefied natural gas projects.
“The ongoing tensions, particularly in the waters claimed in whole or part by China, the Philippines, Vietnam, Malaysia, Brunei, and Taiwan continue to threaten the balance of power in this important region.”
“In order to overcome today’s challenges, corporate strategists must anticipate not only how the market place will evolve in the coming months and years but also provide a pragmatic and safe route for navigating these challenges,” he said.
“One potential strategy for oil and gas companies who want to address these risks is the Strategic Flexibility framework, which is an advanced form of scenario planning that helps companies cope with the uncertainty about the future marketplace. This four-stage strategy process allows a company to go forward with those aspects of its strategy that are likely to pay off under any scenario, while holding a portfolio of options on initiatives that become useful if specific developments occur in the regional and international arena,” he reiterated.