Oil

This oil price slump is turning into a ‘black swan’: one of those economic events that seem to come from nowhere with strange and unforeseen effects. As Brent Crude dips below $70 a barrel and Opec sits on its hands, major banks face losses on financings for US energy companies that must have looked like the safest borrowers in the field in an earlier phase of the shale gas boom. As the rouble plunges and the Russian economy implodes, anyone holding debt paper issued by a Siberian oil giant or a contract to build an oligarch’s superyacht may end up lighting the fire with it. The only thing that has barely flickered is the price of petrol at the pump, so consumers are feeling scant benefit.

Home The Commons, having been specially recalled, passed, by 524 votes to 43, a motion supporting ‘the use of UK air strikes to support Iraqi, including Kurdish, security forces’ efforts against Isil in Iraq’. Only after four days did RAF Tornados from Akrotiri in Cyprus find some targets in Iraq to bomb. In support of her contention that Isil’s ‘hateful ideology has nothing to do with Islam’, Theresa May, the Home Secretary, in a well-received speech at the Conservative party conference, quoted the Qu’ran: ‘Let there be no compulsion in religion’ (Sura 2:256).

Four years ago, I wrote that I knew no dark rumours about Santander, the rising force in UK high street banking, but that history taught me banks which expand rapidly and globally ‘always come unstuck in the end… partly because the challenge of risk control across such vast portfolios becomes impossible… Banks that have been driven by one powerful personality also tend to lose management grip, and start finding skeletons in cupboards, as the big man comes to the end of his tenure.’ The big man in question was third-generation chairman Emilio Botín — who died in post last week, aged 79.

Is international conflict really just a fight over oil? It sometimes seems that way. In Syria and Iraq, the militants of the so-called ‘Islamic State’ sell captured oil while battling to establish a puritanical Sunni theo-cracy. From Central Asia to Ukraine, Russia is contesting attempts (backed by the US) to minimise Europe’s dependence on Russian oil and natural gas. Meanwhile, Obama’s ‘pivot to Asia’ allows the US to threaten the choke points through which most of China’s oil imports must pass. Conspiracy-mongering petrodeterminists who try to reduce world politics to nothing but a clash for oil are too crude (pun intended). No shadowy cabal of oil company executives pulls the strings of world politics.

‘Iraq turmoil sends crude oil prices to nine-month high’ is the sort of headline that used to send shivers down economists’ spines, especially if it appeared on the same page as ‘Europe faces gas shortage as Russia cuts Ukraine supply’. How worried should we be at the current turn of events in the energy world? Since Iraq’s new insurgency kicked off, the price of a barrel of Brent Crude has blipped from $105 to $115 — nothing to panic about — but the more pessimistic analysts are talking of a further $30 rise if Iraqi oil flows of 3.6 million barrels a day (representing about 4 per cent of global demand) are seriously disrupted.