Energy Prospectus

Investor Business Daily 12-19-2023
2024 Oil Prices: Threat of Escalating Geopolitical Tensions

It has been a tumultuous few years for oil prices, as geopolitical jockeying and a global pandemic have roiled the market. In 2023, oil markets turned lower after the price spikes of 2022, driven by Russia's attack on Ukraine. And while the surge of hostilities in Gaza and Israel rattled the geopolitical world, it boosted oil prices for only a month.

However, there are still concerns. If the Israel-Hamas conflict escalates and draws direct conflict with Iran, it could force the U.S. to more strictly enforce sanctions on Iran and its 3 million barrels per day of oil.

And on Monday, oil prices increased more than 2% after recent attacks by Iran-backed Houthi militants on vessels traveling the Red Sea led BP (BP) to began bypassing the trade route. The Houthi rebels have declared support for Hamas in the aftermath of the Oct. 7 terrorist attack on Israel and the ensuing war. The Houthis have begun targeting ships traveling to Israel.

The Red Sea allows oil originating in the Persian Gulf access to the Mediterranean and Atlantic sea lanes, via the Suez Canal.
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Newsweek: Joe Biden's Dangerous New Red Line
Story by David Brennan 12-19-2023

Global oil and gas prices are rising due to a steady drip of attacks on commercial shipping transiting the Red Sea by Houthi militants in Yemen, with the Iran-aligned group looking to undermine Israeli, American, and broader Western interests amid the Israel-Hamas showdown in Gaza.

BP said on Monday it would pause all shipments through the Red Sea, citing a "deteriorating security situation." Shipping giants MSC, Maersk, CMA CGM and Hapag-Lloyd have all also said they will avoid using the Suez Canal route into the Red Sea due to safety concerns. Evergreen Group's container shipping operation said Monday it would suspend Israeli imports and exports "with immediate effect until further notice."

The unfolding maritime crisis poses another thorny problem for the White House, which is said to be juggling divergent demands from its regional allies. The UAE, Bloomberg reported, is pushing for direct military action and the redesignation of the Houthis as a terrorist organization. But Saudi Arabia favors a more diplomatic approach, fearing further Houthi escalation.

There is no easy fix to the Houthi problem. Saudi Arabia and the UAE have been at war with the organization since 2015, working in vain to restore the Yemeni government overthrown in 2014. The group is armed and trained extensively by Iran, but retains significant operational independence.

MY TAKE: Team Biden has a problem (strike back or continue to look like a weak leader)

On Monday, Defense Secretary Lloyd Austin announced the U.S.-led Operation Prosperity Guardian to enhance security for shipping transiting the conflict region, with the participation of the U.K., Bahrain, Canada, France, Italy, the Netherlands, Norway, the Seychelles and Spain.
"The Red Sea is a critical waterway that has been essential to freedom of navigation and a major commercial corridor that facilitates international trade," Austin said.

Michael Allen, who served as special assistant to President George W. Bush and the senior director at the National Security Council, told Newsweek the situation is "getting more and more tense."

"There's so many different fronts," Allen—who is now the managing director of the Beacon Global Strategy strategic advisory firm—added, noting the Gaza campaign, fighting in the Israeli-occupied West Bank, shooting along the Israeli-Lebanese border, militia strikes on American targets in Iraq and Syria, and now regular attacks in the Red Sea.

Allen suggested that an expansion of the war remains unlikely, but noted that "the chances are increasing."

"If the Houthi are able to get a shot off and actually hit one of our destroyers—the missile defense fails, or something gets through—there's going to be hell to pay," Allen said.

"President Biden, as much as he doesn't want to escalate—and that does seem to be the overriding thesis of his foreign policy if you want to stretch that to Ukraine and the Middle East—I don't see how he's going to avoid it."

"If they land a punch, Biden is going to have to hit back very, very hard."

The White House has appeared reluctant to respond to the steady drip of attacks on U.S. targets in Syria and Iraq in recent months, but did eventually order several airstrikes on Iran-linked targets in both countries. One American civilian contractor was killed in the series of incidents.

Another death in the Red Sea—whether military or civilian—may force Biden's hand, Allen said. "If they kill a U.S. citizen, I think that is Biden's trigger to hit back."

Thus far, Western military vessels have weathered Houthi attacks. The USS Carney has repeatedly shot down drones and ballistic missiles fired from Yemen, while the French Languedoc frigate has also intercepted Houthi munitions.

But with each new attack comes new risks. "It's a math problem," Allen said.

I have an easier way to solve the problem.

We tell Iran that we will hijack one of their ships for every missle fired

We then sell the oil, keep the ship, and give the proceeds to the Un

This is the only thing they understand

Obviously freeze all their assets but that means no more kickbacks to the big guy,