US-Iran Escalation: What It Means for Gulf Energy Investment

Tim (0:00)

It's the Morning Drive. Billions of dollars are being committed to Gulf energy projects, but renewed US-Iran tensions are raising fresh questions about the region's investment outlook. Frank Kane is the Editor-at-Large at Arabian Gulf Business Insight, joins us once again to consider the outlook for Gulf energy investment and also maybe what businesses and investors should be watching and more. No doubt, Frank, it's good to see you.

Frank Kane (0:26)

Pleasure, Tim. Thanks for having me again.

Tim (0:27)

Welcome back to the studio. What have we got? We've got Brent Crude knocking around the $100.

Frank Kane (0:34)

It's a bit below now. Yeah.

Tim (0:35)

Slightly under that. Months of friction in and around the Straits of Hormuz, obviously. We've got the Gulf committing billions of dollars in energy investment. We're seeing continued risks around energy infrastructure.

All of the above, we're all aware of. But in broad terms, in your opinion, how could the renewed US-Iran tensions that we're seeing, that we're experiencing, affect the Gulf's major investment plan?

Frank Kane (1:05)

Right. Let's unpack this a little, Tim, if you don't mind, because investment in energy is an enormously complicated subject, and I think people sometimes mix it.

Tim (1:18)

I managed to lump it into one basket there, haven't I?

Frank Kane (1:21)

You did very successfully, and it's a great way into it. But you have to sort your billions from your trillions. Look after the billions, and the trillions will look after themselves.

Obviously, hydrocarbons and all forms of energy are what keeps the multi-trillion global economy turning round. So they themselves are trillions of dollars worth of investment. The IEA, probably the leading body on these kind of things, says that we need... Sorry, let me get my trillions right. Says we need $4 trillion a year, per year, investment in energy until 2050 to get us up to the 2050 pledges and to reach some kind of net zero.

So there we go on the trillions. OPEC says that hydrocarbon investment on its own requires $7 trillion over that period. So that's kind of going in opposite direction to some degree. OPEC wants it all in hydrocarbons. The IA wants it spread out all over the place so that we get to renewables and we get to net zero.

Tim (2:35)

Right.

Frank Kane (2:36)

But that just illustrates what I'm saying. Those are trillions. Those are mind-bending figures.

Within the Gulf, the investments are huge, but they're in the billions. For example, Adnok and Aramco between them probably spend something like $80 billion a year on investment in their systems. You know, oil and gas fields, they are constantly getting depleted. You know, they're getting used. They have to be renewed.

You have to explore for new fields all the time. All that's a hugely costly business. So, you know, that's a long-winded way of saying this is a complicated subject. Yeah. And, you know, oil at 99 or oil at 101 will not make much difference to those investment sums. But, your point is right. We do have to keep on putting money into hydrocarbon and all forms of energy investment, and levels of the hydrocarbon price will affect those decisions. So, you're right.

Tim (3:50)

The thing at the moment that we have, the one thing, the one certainty at the moment is that things are uncertain, right?

So, and there is inconsistency. Washington's posture towards Iran has shifted from this kind of sustained economic, I suppose, containment is the word, towards those pressure tactics. So, my question again is, how are Gulf markets and I suppose state energy planners factoring this friction into their risk models at the moment?

Frank Kane (4:25)

Well, they have to, for sure, and it's made the whole thing far more uncertain. The uncertainty about the Iran situation is almost infinite, it seems to me, despite what we're hearing from New York last night. The Iranians said that they can open the Strait of Hormuz again within seven days, if the US administration pulls back from a blockade, and if it lifts sanctions, they can do it within seven days. Now, we've heard that all before, and that's probably nothing new. The oil market certainly didn't pay too much attention to that, because we've heard it all before. But, so the uncertainty is long-standing, long-running. And I mean, currently people are working on the basis that this will not get, look, there may be some kind of deal, some kind of reopening, but oil markets will not correct probably until next year. You know, the tail end of this will follow on into next year. So, they're working on that basis. And of course, it makes their lives much, much more complicated. And on top of the huge sums that I mentioned are being invested, for example, by Aramco and Adnok, we now have a massive repair bill.