(Bloomberg) — There’s increasing concern that fresh tensions in the Middle East threaten to curtail vital energy resources, said Bob McNally, president of Rapidan Energy Group.
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Israel’s recent moves against Houthis in Yemen are risking the possible rollback of a fragile détente between Yemen and Saudi Arabia, the world’s biggest oil producer, McNally said in a Bloomberg Television interview.
“Phase one post-Oct. 7 was Gaza, and phase two was Hezbollah, neither of which threatened oil,” McNally said, referring to Israel’s assault on Iranian proxies since the onset of the Israel-Hamas war. “Now, we are moving to the Houthis, who threatened Saudi Arabia,” he said, noting that the evolving situation is leading to more risk to crude supplies.
Oil prices in New York on track for a modest annual loss, trading near $71 a barrel. Geopolitical risks have helped to set a floor in the market, even with forecasts for a supply glut next year.
Traders are also awaiting Donald Trump’s inauguration in January to see how the incoming administration may impact crude supply and demand.
McNally said his firm’s view is that the president-elect’s cabinet will be more effective than the current one at managing US energy security issues through an aggressive foreign-policy stance, which could entail the revival of a maximum-pressure campaign against Iran.
“This team will be effective early in imposing sanctions on Iran,” McNally said in the interview. “They are more determined and able to get leverage on Iran by going after exports.”
Still, Trump’s ability to make good on other energy-focused campaign promises, like cheap gasoline, remains doubtful, according to McNally. To slash gasoline prices by half, his administration would either have to “crash the economy into a catastrophic recession” or convince Saudi Arabia to open up their taps, both of which would crush the US shale sector, he said.
“At $1.50 per gallon, US energy dominance dies,” McNally said. “End of story.”
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