Strategies behind the Iran sanctions — Arab News' weekly energy recap

Crude oil prices continued their downward momentum with Brent crude falling to nearly a three-month-low at $72.83 per barrel. (AFP)
Updated 03 November 2018
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Strategies behind the Iran sanctions — Arab News' weekly energy recap

RIYADH: Crude oil prices continued their downward momentum with Brent crude falling to nearly a three-month-low at $72.83 per barrel.
WTI also fell to $63.14 per barrel. The commitment of Saudi Arabia and Russia to offset any shortages after the imposition of sanctions on Iran have eased oil prices. Noticeably, Saudi Arabia increased its production to 10.7 million barrels per day (bpd) in October and is capable of increasing output further if needed. Russia produced at a post-Soviet-era peak of 11.36 million bpd in September. This news has comforted the market with the knowledge that any supply shortages from Iran will be effectively met.
Tomorrow, the US economic sanctions on Iran will come into force. These sanctions were supposed to take Iranian oil exports to zero amid the “highest level of economic sanctions” imposed. However, the US granted waivers to Iran’s top buyers, so that Iran will still be able to legally export at least one million bpd.
Even prior to the sanctions, Iran’s crude oil exports went down from 2.2 million bpd to 1.5 million bpd, as most of Iran’s customers have found other suppliers. Despite the US waivers, many nations will continue to look for other options to purchase the crude oil they need, as the US waivers could be withdrawn with little warning.
It is not clear yet if Iranian condensate will be included in this latest round of sanctions. It was not included during the 2012 sanctions because the Obama administration did not consider condensates to be crude oil. Much of Iranian condensate is from natural gas processing plants. There has been no Trump administration policy statement on whether Iranian condensates will be treated the same way as crude oil.
Any crude oil Iran can sell will be some relief for the country as it is running out of storage. Early last month, Iran was forced to move two million barrels of crude into a bonded storage tank at the port of Dalian in northeast China. It used a similar tactic during previous US sanctions. Such a ploy is necessary so that Iran can maintain enough storage for condensate from its natural gas fields. Otherwise, they would be forced to shutter natural gas production. That would cause severe unrest among its population since natural gas is used for about 70 percent of Iranian domestic energy consumption, including home heating.
China is the largest importer of Iranian crude. China used to be the largest importer of US shale oil until the outbreak of the US-China trade dispute. Now is the time for China to play its cards, inviting the US to de-escalate the trade dispute if China agrees to buy US crude in place of Iranian barrels. Considering that China’s trade surplus with the US has hit record highs, this could be a win-win situation. The only question is whether the US oil export infrastructure can keep up with the volumes needed. US oil exports have faced some challenges lately, dropping to 1.5 million bpd from a peak of two million bpd.
Another issue, which is also uncertain in regards to the US sanctions, is the small amount of trade of Iranian crude oil which is done through small banks outside the US financial system. Those banks helped Iran to export oil during 2012 sanctions. This is despite the fact that Iranian oil tankers will face huge challenges in securing insurance that is mandated by the refineries’ discharging ports.
Finally, it is unknown if the sanctions will include Iran’s “swap” arrangements with neighboring countries. Iran does oil-gas swaps with Caspian Sea nations. It also does oil swap deals with these countries, so that Tehran can supply northern areas with oil processed at the Tehran, Tabriz, and Arak refineries without having to transport it all the way from wells in the south. In another swap deal, Iraq sends oil from its northern Kirkuk fields to Iran by road, to be refined in Iran.
In return, Iran sends the same amount of crude to Iraq’s southern ports for exports. These swaps are considered an outlet for Iranian crude oil and US sanctions on them could cause considerable disruption.


Infectious diseases are set to become as great a risk for global business as climate change

Updated 19 January 2019
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Infectious diseases are set to become as great a risk for global business as climate change

LONDON: The Global Risks Report 2019 jointly compiled by the World Economic Forum (WEF) and the Harvard Global Heath Institute describes a world that is woefully ill-prepared to detect and respond to disease outbreaks.
In fact, the world is becoming more vulnerable to pandemics, despite advances in medicine and public health.
Global GDP will fall by an average of 0.7 percent or $570 billion because of pandemics — a threat that is “in the same order of magnitude” to the losses estimated to be caused by climate change in the coming decades.
“Outbreaks are a top global economic risk and — like the case for climate change — large companies can no longer afford to stay on the sidelines,” said Vanessa Candeias, who heads the committee on future health and health care at the WEF.
Potential catastrophic outbreaks of disease occur only every few decades but regional and local epidemics are becoming more common. There have been nearly 200 a year in recent times and outbreaks of diseases such as influenza, Ebola, zika, yellow fever, SARS, and MERS have become more frequent over the last 30 years.
At the same time antibiotics have become less effective against bacteria.
The impact of influenza pandemics is estimated at $60 billion, according to a report by the Commission on a Global Health Risk Framework for the Future — more than double previous estimates.
The trend is expected to get worse as populations increase and become more mobile due to travel, trade or displacement. Deforestation and climate change are also factors.
Businesses need to bone up on the risk of infectious diseases and how to manage them if the overall economy is to remain resilient.
Peter Sands, research fellow at the Harvard Global Health Institute and executive director of the Global Fund to Fight Aids, Tuberculosis and Malaria, said, “When business leaders are more aware of what’s at stake, maybe there will be a different dialogue about global health, from being a topic that rarely touches the radar screen of business leaders to being a subject worthy of attention, investment and advocacy.”
Predicting where and when the next outbreak will come is an evolving science but it is possible to identify certain factors that would leave companies vulnerable to financial losses, such as the nature of the business, geographical location of the workforce, the customer base and supply chain.
Disease is not the only threat. There is also fear uninformed panic. Past epidemics have shown that misinformation spreads as fast as the infection itself and can undermine and disrupt medical response.
The report advises planning for such emergencies by “trusted public-private partnerships” so that “businesses can help mitigate the potentially devastating human and economic impacts of epidemics while protecting the interests of their employees and commercial operations.”
It is estimated that the outbreak of Ebola in West Africa in 2014-2016 cost $53 billion in lost commercial income and the 2015 MERS outbreak in South Korea cost $8.5 billion. According to the World Bank, disease accounts for only 30 percent of economic losses. The rest is largely down to healthy people changing their behavior as they seek to avoid becoming infected themselves.
The authors of the report will make recommendations next week at the World Economic Forum annual meeting in Davos.