In light of the escalating tensions between Israel and Hamas, Reuters reports that oil dealers are willing to pay a premium for annual supplies of most Middle Eastern petroleum through 2024. It is unclear how much and for how long the crisis will influence the global economy, even if what many suspect is confirmed: that the conflict has produced irrevocable spikes in energy costs.
Despite the typical caveats about the dangers of war, two scenarios have been adopted by businesses in the region. The first is a limited war, in which prices rise just modestly ($4-7 a barrel) and hence lead to an insignificant increase in inflation (0.1 percent). The second possibility is a regional conflict that escalates into a full-scale war. Some estimates suggest that if this occurs, oil prices might spike above $150 per barrel, triggering a global recession and strong inflationary pressures.
The Israeli economy is already beginning to adjust to a new normal, following what some consider Israel's equivalent of 9/11. Reducing consumer spending and acute labor shortages at seaports and supermarkets due to reservists being called to war. The economic instability in Israel is not going away anytime soon, according to our publication's sources, because missile attacks occur regularly and rocket sirens sound at least twice a day in some locations. The government has vowed "unlimited" spending to pay for the war and recompense victims and businesses, which might lead to a larger deficit and higher debt levels. At the end of October, the Ministry of Economy established a database associating at least 8550 individuals with defunct businesses. The Israeli government's central bank has reduced its growth projections for 2023 and 2024 from 3 percent to 2 and a half percent and 2 and a half percent, respectively. According to these scenarios, the conflict will be confined to the Gaza Strip.
Israel has changed its own usage patterns despite cutting off electricity to the Gaza Strip. Over forty percent of Israel's energy comes from natural gas, and it's used to generate seventy percent of the country's power. The electric firms were tasked by the Ministry of Energy to find sustainable fuel alternatives. Located only 25 kilometers from Gaza, the Tamar field mostly provides internal needs, therefore it issued an order to Chevron to temporarily suspend production there. Moreover, it issued a directive to Chevron to temporarily restrict gas shipments through the Eastern Mediterranean Gas Pipeline (EMG), which runs from Ashkelon, an Israeli city 13 kilometers north of Gaza, to Arish, an Egyptian city in the northern Sinai Peninsula. The closure of EMG, which was close to the front lines, had a minimal impact on Israel's overall energy supplies.
However, Israel's strategic advantage lies in its offshore gas deposits. With the discovery of the Tamar deposit in 2009 and the Leviathan field in 2010, Israel was able to rapidly switch its energy infrastructure from coal to gas and eventually become a gas exporter. With Leviathan contributing 11.4 billion cubic meters and Tamar adding 10.2 billion cubic meters, Israel has produced 21.9 billion cubic meters of gas in 2022. Israel sent 5.8 billion cubic meters to Egypt and 3.4 billion to Jordan out of a total need of 12.7 billion. The sum was anticipated to increase even further in the year 2023. Israel may boost its share in the global natural gas market as a result of the conflict in Ukraine and the European Union's search for alternatives to Russian energy.
In fact, conversations concerning the use of energy to stabilize the regional economy have been sparked by the discovery of offshore gas deposits in the coastal seas of Israel and other nations of the Eastern Mediterranean. The conflict in Ukraine has increased the determination of these groups to participate in the commercialization and monetization of Europe's natural resources. The decades-long maritime border issue between Israel and Lebanon was resolved in November; as a result, Lebanon now has access to the portions of the Cana and Sidon deposits that are located within Israeli seas. So far, despite heated rhetoric to the contrary, Hezbollah appears to be adhering to unofficial red lines it must not breach if the arrangement is to help rebuild Lebanon's economy.
Despite the war's likely impact on the speed and cost of future energy operations in Israel, the country appears determined to press on nonetheless. Six corporations, including BP and Italy's Eni, were named in his announcement on October 29 regarding the issuance of 12 licenses to conduct exploration and identify further reserves.
Despite the war's likely impact on the speed and cost of future energy operations in Israel, the country appears determined to press on nonetheless. On October 29th, he stated that 12 licenses had been granted to several businesses, including BP and Italy's Eni, in order to search for and discover more offshore natural gas deposits. In Israel's economic waters, this is the fourth offshore offer for natural gas exploration since 2010. The successful bidders will join two exploration consortia to look into two areas close to Israel's Leviathan deposit. (On the one hand, we have BP, the British Petroleum business, the Azerbaijani state oil business Socar, and NewMed Energy; on the other, we have Eni, Dana Petroleum, and Ratio Energies.) The companies have three years to look for wells, with the possibility of an additional two years if they find at least one.
This means that European oil corporations are now fully committed to the region, and that Israel has received new upstream investment from them. Additionally, this indicates that numerous businesses support a limited conflict scenario. Companies like Eni are certainly in it for the long haul, as everyone seems to agree that it might take six to twelve months before exploration ever gets started.
Things weren't always thus. Fearing retaliation from Arab oil producers, many businesses have avoided Israeli upstream ventures for years. But in 2020, with the Abraham Accords, everything shifted. The sovereign wealth fund of the United Arab Emirates will invest in the Tamar gas field in 2021 as a result of Chevron's entry into the market. Despite the present violence in Gaza, British Petroleum has shown interest in offshore projects in the Eastern Mediterranean by competing with Abu Dhabi National Oil Co. to purchase a 50% stake in Israeli gas company NewMed Energy.
What Chevron went through in Israel exemplifies the need of perseverance in dangerous environments. After missiles were fired at Tamar in 2021, EMG was shut down and its traffic was redirected to another regional network. However, gas supplies to Israel and Egypt will be decreased if the shutdown of Tamar and EMG persists.
Life in Egypt has become more difficult as a result of the conflict. Cairo will be able to extract concessions from its creditors and alleviate its severe economic problems as a result of the upheaval, despite the country's apparent rejection of all offers to accept Palestinian refugees in exchange for foreign aid and debt forgiveness, a prospect reportedly being floated by US and European officials. The European Union is exploring a partnership deal with Egypt, centered on migration and economic cooperation, as the basis for a sizable financial aid package due to concerns about the conflict's destabilizing impact, which could lead to an increase in illegal migration from Egypt to Europe.
As the EMG pipeline remains offline, EU concerns about Egypt's status will increase. Egypt's ability to provide for its people's energy demands and to export liquefied natural gas to the European Union would be hampered by prolonged gas shortages. (This year's deliveries are down from 2022's.) Even though Egypt isn't a really significant provider, the impending cold in Europe and Asia has already led to a price increase for LNG.
As time goes on, the global economy will feel the effects of the Israel-Hamas conflict. Companies have not yet begun reevaluating their investment decisions in light of Ayatollah Ali Khamenei's (the Supreme Leader of Iran) appeals to Arab and Muslim nations for a trade boycott on Israel, which includes oil. Current foreign investors show no signs of wanting to depart.
One possible outlier is Turkey. Crude oil exported through the Turkish Ceyhan terminal meets over 40% of Israel's yearly oil consumption. But Israel's response to Hamas strikes has not been met with approval in Ankara. Reports out of Turkey suggest that Turkey may back Iran's energy embargo against the West because of President Recep Tayyip Erdogan's statements in support of the Palestinians and the Turkish media's coverage of such statements.
Strong collaboration in the Eastern Mediterranean could be hampered by the worst-case scenario, a wider conflict between Israel and the Arab states. This would make Israeli gas ventures with Egypt, Jordan and Lebanon considerably more difficult, if not impossible. The new gas developments are supposed to serve as a focal point and enhance trust in the area. EU countries like Italy, which rely on energy in the region as part of a transition away from Russian exports, and whose companies are already investing in manufacturing and export infrastructure in the Eastern Mediterranean, would be hampered by more permanent restrictions on export opportunities in the region. Mediterranean. Turkey's role in enabling the flow of energy to Israel and Europe would be constrained if it joined the coalition against Israel. But for that to happen, Ankara will need to say more than just political things. And although there is no interest in this, all corporations working with Israel to construct energy projects in the Eastern Mediterranean remain wary, but also confident.
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