While the oil trade has become more insulated from geopolitics, Israel's crisis shows Eastern Mediterranean gas is vulnerable, writes Jim Krane.
About the author: Jim Krane is the Wallace S. Wilson Fellow for Energy Studies at Rice University’s Baker Institute.
For now, it is the budding natural gas trade in the Eastern Mediterranean being roiled by the Israel-Hamas war. But oil’s turn may yet come. Geopolitically, too, some normalization is apparent. Friday, Oct. 6 was the 50th anniversary of the 1973 Arab-Israeli war, the precursor to the devastating Arab oil embargo. As of then, most oil producing governments in the Middle East had come to accept Israel. Some even recognize and trade openly with it.
Unfortunately for President Biden and American drivers, that decision could also put the brakes on Saudi willingness to raise oil production next year if prices are high. Saudi-Russian price hawkishness through OPEC+ has pushed average U.S. oil prices above $80 per barrel for all but eight of the last 21 months. The Saudi offer of a production increase emerged as an attractive concession ahead of U.S. presidential elections in 2024.
Iran may also choose to respond. Under former President Trump’s attempt to drive Iranian exports to zero, we saw devastating attacks on Saudi oil infrastructure that were credibly attributed to Iran, along with ship boardings and mysterious tanker explosions caused by limpet mines. When Iran responds to the U.S. or Israel, it tends to do so in ways that raise costs for American motorists.
For Chevron, a key driver for its investment in Israeli gas was the proximity to underutilized LNG capacity in Egypt. From Egypt, LNG cargoes would assist Europe in filling the void left when Russia cut off most gas deliveries. Much of the infrastructure behind that trade lies close to besieged Gaza. One way or another, war is bound to stress those relationships.
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