Middle East tension heightens market concern

Escalation of Middle East violence triggered a 10-year spike in some international energy futures prices Thursday amid new fears of possible disruptions of oil supplies. However, a spot check of some of the oil companies active in those areas indicated no immediate threat to operations.


Sam Fletcher and Kate Thomas
OGJ Online

Escalation of Middle East violence triggered a 10-year spike in some international energy futures prices Thursday amid new fears of possible disruptions of oil supplies.

However, a spot check of some of the oil companies active in those areas indicated no immediate threat to operations.

The November contract for North Sea Brent oil jumped by $3.51 to a temporary peak of $35.30/bbl on the International Petroleum Exchange in London, and US light, sweet crude was trading at $35.35/bbl on the New York Mercantile Exchange, up $2.10 from its opening, after Israeli helicopter gunships attacked targets in Gaza and the West Bank city of Ramallah.

Those attacks on a police station and near the Ramallah headquarters of Palestinian President Yasser Arafat were to revenge two Israeli soldiers earlier stabbed to death by a Palestinian mob at the police station.

In a different incident, at least four US sailors were killed and as many as 36 others were injured in an apparent terrorist attack on a US destroyer in the port of Aden, Yemen, Thursday.

The USS Cole, an Aegis class destroyer, was in port for routine refueling when a small rubber boat apparently loaded with explosives rammed it in the rear. The resulting explosion blew a 20-by-40-ft hole in the ship's hull, officials reported.

However, financial analysts pointed out that Yemen is not among the Middle East members of the Organization of Petroleum Exporting Countries and is not a major oil producer.

No supply disruption expected
Robert Morris at Salomon Smith Barney Inc. said he doesn't expect a major disruption of Middle East oil, short of a widespread war in that area.

If the violence continues to escalate, said former Israeli and Syrian ambassador Edward P. Djerejian, now director of the Baker Institute for Public Policy at Rice University in Houston, "I would not exclude any option, but I would hope [OPEC] will not use the so-called oil weapon."

Djerejian said much will depend on Saudi Arabia, the swing oil producer in the region, and its leaders' close ties to Arafat. But with thousands of Arabs taking to the streets in Middle East countries from Morocco to Oman, Arab leaders have to be concerned about public opinion, he says, potentially narrowing the Saudis' ability help broker a deal to calm things down in the region.

"It becomes more difficult for Saudi Arabia to play this role when the streets are so impassioned," he said.

Both the Israelis and the Arabs must "rein in the extremists" and get the peace process back on track, Djerejian said. Despite some calls for war, he noted war has dogged the Middle East since 1948 without ever solving the problem. "Another war is not a magic solution," he says. If the crisis continues, Djerejian says, "I think we can see very high energy prices this winter.

The market has already demonstrated the jitters."

Prior to his nomination by President Clinton as US Ambassador to Israel, Djerejian served both President Bush and President Clinton as assistant secretary of state for near eastern affairs and President Reagan and President Bush as US ambassador to Syria.

Company reactions
Industry representatives said Thursday they see no immediate impact on oil and gas operations in the Middle East, although they deplored the spread of violence and the additional deaths and injuries.

"We've always known that there were chances of things happening in Israel and that we would have to work in and around them. We're in the (Biblical) end of times, so there's going to be violence," said Rick Palmer, director of investor relations for Ness Energy International Inc. He reiterated the company's determination to continue its work in the area.

Headquartered near Dallas, independent Ness Energy is exploring for oil in Israel on the basis of Biblical interpretations by its president, Harold "Hayseed" Stephens. The company and its partner, Israel Oil Co., recently awarded a contract to Lapidoth Israel Oil Prospectors Corp. Ltd., a drilling contractor, to reenter and deepen the Har-Sedom No. 1 well that was drilled to 5,800 ft about 15 years ago (OGJ Online, Oct. 11, 2000). Drilling is expected to begin by Christmas.

A Houston employee with a different company, Isramco Inc., said that the company recently completed the Nir-1 well it was drilling off Israel and, pending further developments, is now working on a joint venture project in which it has a 50% stake offshore the Congo.

"Our people are exercising an appropriate level of caution," said a spokesman for Noble Affiliates Inc. Samedan Oil Corp., a wholly owned indirect affiliate of Noble Affiliates, holds a 47% interest in an exploration agreement covering 11 permit areas encompassing just over 1million acres off Israel.

Noble has reported four wells confirmed recoverable reserves totaling more than 1.3 tcf of gas. (OGJ Online, May 22, 2000). The company expects to receive a rig in December to continue exploration drilling.

Officials at Apache Corp. said their core operation in Egypt is not threatened by the conflict between the Israelis and Palestinians. "We're concerned about the loss of lives in the Middle East," said Tony Lentini, vice-president. "But Egypt is a stable country and a good place to work. There is no reason to fear any effect on our operations there."

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