The Impact of Global Politics on the Oil and Gas Industry

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Global players in the oil and gas industry understand one major thing… The political statements and public posturing of governments can directly impact their bottom line. From shipping lanes to supply and demand, every aspect of the market relies on the relationships and trade agreements countries and allies fostered after the 2nd World War. As new players emerge, new partnerships disrupt the traditional status quo and elevate certain alliances to greater significance.

The industry operated this way for most of the 20th and 21st centuries. However, recent changes in both the technologies deployed and political unrest around the globe have led to previously unchartered landscapes. Specifically, we are referring to the US’ Shale Boom. This meant that certain countries the economy depended on were no longer that important to political leaders. Similarly, markets that flourished in the early 2000s couldn’t compete once the price for crude oil started trending downwards.

EIS Energy Graph

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Historical Importance of Oil and Gas Industry Regions No Longer Apply

One country that the US traditionally relied on for its oil and gas security was Saudi Arabia. The shipping lanes that delivered these essential resources required a global supply chain and strategic partnerships with regional allies, especially in the Middle East and particularly, Egypt (as the owners of the Suez Canal). As most of the oil wells and refineries were located on the west coast of Saudi Arabia, the security in the Strait of Hormuz remained of strategic importance to the United States.

Tensions between the nations of Iran and Saudi Arabia continued to be a flashpoint in US domestic politics. A recent attack on Saudi Aramco’s production facilities (attributed to Iran by both the US and Saudi Arabia’s governments) led to only a 5% reduction in global supplies. Compared to a historical high of 42.5% in the early 1990s, it clearly indicates a downgrade in the importance of the traditional powerhouse that is the leader of the OPEC nations.

US Production Records since 2008

For the first time in decades, the US now considers itself as a net exporter of oil and gas. Although it may be short-lived, it’s largely due to the political policies and concessions given to the shale oil producers. Stimulated by commodity investors, the industry quickly grew from 2008 to new highs in 2019. Domestic and offshore production techniques allowed US producers to recommission wells they previously didn’t consider as viable. While shale oil and gas production methods remained in the public spotlight, politicians and officials understood that they needed to take bold steps towards energy independence.

Although the attack on Saudi Aramco led to a spike in crude oil prices on the global market, strategic reserves in the US economy should limit the impact on consumers. The US consumes less than it produces, but still exports and imports oil and gas from strategic partnerships with countries in the Middle East and Africa. The US, by no means, no longer cares about Saudi Arabia’s role in their essential oil supplies, but strategies inside the current government do not seem to be as cut and dry as with previous administrations.

Global Petroleum & Natural Gas Production

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Policy Shifts as Domestic Production Continues to Rise

In fact, as the US currently produces 18% of the world’s total supply in barrels per day (6% more than Saudi Arabia), political winds are shifting away from supporting the Kingdom in every endeavor. Recent events have led to political officials calling for new strategies in dealing with Saudi Arabia in regards to foreign policy. The war in Yemen, the murder of Jamal Khashoggi, and skirmishes between Iranian and United Kingdom vessels in the Strait of Hormuz have all prompted senators and congressmen to openly question the relationship the US maintains with Saudi Arabia.

While the alliance between the nations persist under the current administration, its significance is no longer self-evident. A new government may opt to walk away from the decades-long relationship. This would be due to the optics of doing business with the new Crown Prince, Mohammed bin Salman. Of course, it would also remain important to have a strategic ally in the region. However, new powerhouses like the United Arab Emirates and Egypt could lead to a shift in foreign policy. This would, in fact, pertain to the future of the oil and gas industry.

Oil Country Tubular Goods Imports and Tariffs

Another area the oil and gas industry needs to watch is the ongoing trade war between the US and China. Prices for line pipe OCTG spiked after investigations revealed China’s exporters were still dumping steel products into US markets. The administration’s tariffs serve as a way to combat these practices. Yet, smaller importers and domestic mills seemingly cannot make up the difference required for expanding production.

Dumping, by definition, is the practice where manufacturers sell their products at an unfair price in certain economies. They do this in an effort to maintain a larger share of the market. Though this hurts manufacturers of OCTG in the domestic market, it actually helps producers commission and complete new wells. New tariffs on Chinese and South Korean imports will inevitably lead to a reduced number of future wells coming online.

Keeping You Informed with the Latest Oil and Gas Industry News

In any event, the reduction in demand for domestic oil and gas partnered with the rise in production from shale oil in the local market will continue to shape the future of the US’s foreign policy.

MSI Pipe Protection Technologies strives to provide the highest quality pipe protection product equipment and devices. We also enjoy keeping you up-to-date with industry news and information. This is part of our goal in helping you deliver protected pipe all day, every day.

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With the oil and gas industry always on the spotlight with foreign and domestic stakeholders, MSI remains committed to helping protect key investments. Our goal is to help ensure safer operations during every stage of the production lifecycle. For more information about our pipe protection solutions, get in touch with one of our agents today. Or call us toll-free at 877-276-9208 for immediate assistance.

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