- 5 hours ago
Geopolitical tensions are once again putting global energy markets on edge, raising concerns over supply disruptions and renewed price volatility. As key oil transit routes come into focus, the question now is: Are we looking at a short-term shock or a more structural risk to global energy security? More indepth with Prateek Pandey, Head of APAC Oil & Gas Research at Rystad Energy.
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00:00Geopolitical tensions are once again rattling global energy markets,
00:04renewing concerns over potential supply, disruptions and sharp swings in oil prices.
00:10With key transit routes and producing regions under pressure,
00:14the big question now is whether the world is facing a temporary shock
00:17or deeper structural risk to global energy security.
00:21To break this down, we're joined live by Pratik Pandey,
00:25Head of Asia-Pacific Oil and Gas Research at Arise.Energy.
00:29I want to say thank you very much, Pratik, for joining me.
00:32Firstly, we're going to take a look at the global energy security.
00:34At a global level, how serious is the current situation for energy security?
00:39Are we looking at a short-term disruption or something more structural?
00:47Yes, to start with, we have already seen two months almost of a disruption
00:52to a significant supply to the global countries.
00:56And this is not small volumes.
00:58It's about 20% of the global oil trade and about 18% to 20% of the LNG trade
01:04as well.
01:05So the impact is significant.
01:07And we have seen already the impact reflecting in terms of the Brent prices
01:12increasing significantly over the last two months.
01:14When you ask about the potential impacts,
01:17I would say it is both in the near term or the immediate impact,
01:21which is reflected in terms of the higher prices,
01:23which is ultimately impacting the economies and the structural shift,
01:29which in a way brings a significant importance back to energy security
01:33for all the policymakers around the world.
01:36Something that is more relevant to Asia-Pacific, I would say,
01:39is because Asia imports about 80% of the trade through the state of foremost,
01:46that is heading out, is heading to Asia-Pacific.
01:48So the impact is significant on Asia.
01:51There are talks about impact on the economy.
01:54And the biggest concern there is something which we are calling as tagflation,
01:59which is, in a way, we are looking at a market which is facing both inflation and recession.
02:04Yeah.
02:06And how does this compare to past oil shocks?
02:09Are the risks fundamentally different this time?
02:13Well, I can say that it is the largest oil supply shock that the world has seen in the last
02:1850 to 60 years.
02:19We have seen some oil shocks in terms of Arab oil embargo in 1970s,
02:25which impacted about 5 to 6 million barrels per day of the global supply.
02:30I think the next big was the Gulf War in about 1990s,
02:35which was also about 4 to 5 million barrels per day of the impact on supply.
02:40The current geopolitical conflict in the Middle East is impacting about 10 to 12 million barrels per day of oil
02:49supply every day.
02:51So it is almost double of what we have seen in the past.
02:55But something that also differentiates it from the past conflicts is the infrastructure damage that we are looking at,
03:03which will possibly make the recovery a bit longer than what we had expected.
03:09And Pratik, a lot of the concern right now centers around key oil transit routes and checkpoints.
03:15How real is the risk of disruptions at this stage?
03:20I can say that it's not, in fact, a risk anymore.
03:23Most countries in the world are facing this for almost two months now.
03:28It is a reality.
03:29And we have seen how significant this choke point or the impact of straight-of-formance closure is.
03:35The risk now is the bypass routes.
03:38If they can continue operating at the expected capacity or whether they will be impacted as well.
03:45And again, I'll repeat my point to Asia, this is the region which will face the biggest impact or exposure
03:52to any of these choke points.
03:54And following Asia, it's not only this region.
03:56We are also seeing the similar impacts in Europe and other parts of the world as well.
04:01And we also need to take a look at our system resilience.
04:05The key question is whether the system can absorb any shock.
04:09How resilient is the global energy system today?
04:11Produces and spare capacity sufficient?
04:16We were in a resilient phase.
04:19The global oil system or the global markets were in a resilient phase.
04:22But it has slowly moved to being more fragile at this point.
04:25There was a significant spare capacity that the world was talking about.
04:29But majority of that spare capacity is right now geographically inaccessible.
04:35And that is what is the biggest challenge that the world is facing.
04:38The other option that most countries had in mind is the strategic reserves.
04:43But keep in mind that strategic reserves are just buying us time.
04:47It's not a replacement.
04:47It's not a solution.
04:49So relying on strategic reserves for a long time is not something that economies want to do as well.
04:55So it is definitely moving more towards fragile from being resilient at this point.
05:01And who is best positioned to step in if supply is disrupted?
05:08Well, there are a number of options that the countries around the world are looking at.
05:12Within Asia Pacific, most countries are looking at any additional supply from the Asian exporters,
05:18which includes Malaysia, Australia, Indonesia, Brunei, these countries.
05:22But when it comes to oil, there are discussions some countries are having with Russia, South America, and U.S.
05:29and Venezuela as well.
05:31But the fact is, in both LNG and oil, there is no country which can replace the impact or the
05:38volumes that we were expecting from Middle East
05:40or the volumes that were transiting from straight or foremost.
05:44So there is no replacement available.
05:46It is only a minor percentage of the impacted supply that can be bought in from the other countries.
05:54And also, it's impacting the market signals.
05:58Markets are reacting, but are they getting it right?
06:00Is there a mismatch between perception and the actual risk?
06:05Well, to be fair, market has never seen this level of extreme volatility in the past.
06:11We mentioned in the previous question that this is the biggest impact to the oil market.
06:16And a good example was just on Friday with one announcement about opening up straight or foremost.
06:22We saw the Brent prices going below $90.
06:25And then we have seen over the weekend what has happened.
06:28It is back to where it was before that announcement.
06:31So post-cease-fire recovery is possibly something that the market is slightly underestimating.
06:37And that is something we need to keep in mind.
06:39And the other thing that comes to mind here is the confidence in the shipping companies.
06:44That has taken a hit and that will take a bit to recover.
06:48So that will also slow down a bit of trade going forward.
06:51And bringing it closer to home, Asia remains heavily dependent on energy imports.
06:57Also, we want to understand the expose of this region to prolonged disruptions.
07:02And would the impact be felt more through inflation or a slowdown in growth?
07:07Well, there are definitely a lot of structural shifts that we see in Asia-Pacific as well.
07:12The countries are looking at diversifying their import markets.
07:15Either it is in terms of products, crude, LNG, all of it.
07:20The discussions which we were having on the ASEAN power grid, that is almost moving from optional to being urgent
07:26at this point.
07:27Nuclear is something that countries are looking at as a big structural shift, especially in countries like Indonesia, Singapore, Malaysia.
07:36It is likely to gain a lot of traction going forward.
07:39So there is a lot of structural shift in Asia-Pacific as well.
07:43And that's expected because if you look at the inflation numbers over the last month, in Philippines, it has increased
07:50from 2.4% to about 4% and higher and is likely to go even higher, up to 6
07:56% in the months to come.
07:58Singapore has seen the same from about 1.4% to 1.5% increasing to about 2%.
08:04There are estimates that it could go to about 3% or higher as well.
08:09Malaysia has seen the same.
08:11We have seen inflation to increasing about 2% this month from an average of about 1.6%, 1.7
08:19% in the first quarter.
08:21And it doesn't stop just here.
08:23It could likely go to about 2.5% to 3% as well from Malaysia going forward.
08:29So most countries in Asia are struggling with how to keep the inflation in control and how to continue the
08:37GDP growth.
08:39Yeah.
08:41And Pratik, for Malaysia, the concern is how global volatility fits into domestic pressure.
08:47And as you mentioned previously, this is one of the most high volatility we have witnessed in over centuries.
08:54With fuel subsidies running at around RM6 billion monthly, where are the key pressure points?
08:59How might this affect subsidies, fiscal space and overall policy direction?
09:05Well, I would first highlight here, Malaysia has a certain positive as well, that it is ultimately a net exporter
09:12for oil and gas, especially for gas, I want to say.
09:16And that balances the things, although keeps the fiscals still negative, given the pressure from the subsidies, as you mentioned.
09:25The other thing that works in favor of Malaysian GDP growth is the AI and data center boom that we
09:31are seeing around the country.
09:33And those are structural upsides that the country is likely seeing.
09:37When it comes to potential pressure on the fiscals in the economy, that is likely to come down in spite
09:45of the subsidies.
09:46It is likely to reflect on the food prices, on the fertilizers, and ultimately wider way on the economy as
09:54well.
09:55And that is something most countries in the region globally are facing.
10:00One thing this current conflict has done is it has forced the economies to move from growth mindset to a
10:08defensive mindset, you can say.
10:11And that is apparently what you are seeing in case of Malaysia as well, in terms of subsidy pressures building
10:17up and more.
10:20And in this environment of uncertainty, what should policymakers in the region be doing now?
10:26Is this a moment for intervention like giving economic stimulus packages or would restraint be the wiser approach?
10:35Well, we saw a great example of what the policymakers should be doing when Australian Prime Minister was in Malaysia
10:42very recently.
10:42I think this last week we have seen discussions and signatures happening on energy security banks in terms of LNG
10:51and crude products being exchanged between the countries in the long term as well.
10:56There are discussions on food security as well.
10:59There are more discussions in terms of widening the trade with other countries where we can escape any potential show
11:07points.
11:07That is an ultimate priority for the policymakers.
11:10Because when it comes to subsidies, that needs to be balanced as well, 100%.
11:15And although it is indeed challenging, we heard the Prime Minister saying that we need to control the prices first
11:22and then think of the stimulus.
11:23That is likely to be the focus for all the governments in this Asia-Pacific region to first control the
11:30prices.
11:30And that is what brings me back to the point that we are moving into a defensive economy rather than
11:36thinking of a growth mindset going forward.
11:39And probably in the long term is where we will see some stimulus coming into the economy to boost the
11:45industrial growth as well, but not likely to be seen in the short term from most of the countries.
11:51All right.
11:52We're coming into two months after the war started, geopolitical uncertainty until now.
11:57And very volatility, we can also be seen in the markets, high and low.
12:03But if this crisis or geopolitical or the war will go more than maybe three months or six months, can
12:11we expect to be a defensive economy more than growth?
12:15How can you see or how can you oversee what our future will be like for most economies?
12:23For most economies, I think we are moving into a phase where there are hints of demand destruction happening with
12:29the industrial shutdowns and other things in most of the countries, especially in Asia-Pacific.
12:36When you talk about the conflict in the Middle East extending to about six months, it is definitely going to
12:43put a significant pressure on most economies.
12:46It will take us back to the point that I mentioned earlier.
12:50We will be looking at a potential of stagflation, which is something more difficult for economies to get out of.
12:58We have seen the concerns around recession and we have seen the concerns around inflation increase.
13:04But stagflation would be something more of a long-term challenge, mid-to-long-term challenge for these economies going
13:11forward.
13:13Are we prone to maybe a recession?
13:19There are estimates of potential recession and a significant increase in inflation as well.
13:27So I am referring to both the situation here where we have potential recession because of increase in prices of
13:35the goods and the slowdown in the economy and in parallel to the inflation as well.
13:41So a combination of this is what is a more difficult situation for the governments to deal with.
13:50Last question, Patrick.
13:52If this conflict, Middle East conflict, extended for more than six months and to whenever we don't know when,
14:00what are the three things that any governments or any country should start with?
14:08I think specifically on Malaysia, I still see there is not as significant impact as some of the other economies
14:16in Asia Pacific like Philippines, Myanmar or Bangladesh and Pakistan.
14:23Those are facing higher number of challenges and there is significant reduction in traffic.
14:28There is demand destruction.
14:29I think from policymakers' perspective, they are already thinking of that as a scenario.
14:35The first priority would be how do they manage the available supply?
14:39How do they allocate it to the right set of industries, to the right part of the economy to ensure
14:47that we are not heading for a long-term impact on the economy?
14:51And then support it through subsidies as well.
14:54That is going to be the priority.
14:56And the second is something that I mentioned earlier, look for any potential alternate supply sources.
15:03We have already seen Indonesia in discussions with Russia about crude imports and more trade discussions.
15:10So that is something that policymakers will be doing.
15:13In fact, most of them are already in action from the region as well.
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