How Afghanistan political turmoil may lift oil prices for Nigeria, OPEC

There is a growing concern that the political turmoil in strategically-located Afghanistan could impact global crude oil prices, a development that a make or mar the economic outlook of Nigeria and some of the biggest oil-producing countries.

Although it may seem far-fetched that the political brawl in Afghanistan, which neither feature as a prominent oil-producing country nor a major consumer country, would have a bearing on global crude prices or Organisation of Petroleum Exporting Countries (OPEC).

However, some experts are forecasting the impact of such utter confusion and uncertainty that could easily spill over in the region including Iran and other countries such as Saudi Arabia and UAE which are major oil producers in the world. Saudi Arabia is the second-largest oil producer in the world, exporting about 59 percent of its crude.

“What happens in Afghanistan in near future will impact oil prices, especially if the Taliban go back to their old ways and allow sanctuaries to Islamic fundamentalists from hydrocarbon-rich Middle East, North Africa and Central Asia,” energy expert Narendra Taneja in a tweet said.

“If they changed, they will not be Taliban,” he added.

Taneja explained that if the turmoil is restricted within Afghan boundaries, the impact would be limited. But if Afghanistan continues to be on boil, and boil violently, the oil-producing regions of Middle East and Central Asia could get affected and, consequently, oil prices,” he said.

Barrons, an American weekly magazine/newspaper published by Dow Jones & Company said that tensions in the “Middle East have the potential to lift prices.” It noted that earlier JP Morgan had predicted that oil prices could touch $80 a barrel with rising demand and constraint supply.

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Matt Gertken, head of geopolitical strategy, BCA Research provider of global investment strategy, in an interview with Barrons, said the current turmoil in Afghanistan will suit OPEC’S hunger for higher oil prices.

“The most likely outcome is increased volatility in oil prices,” Barrons quoted him as saying.

Brent, the benchmark for Nigeria’s crude oil fell 8percent last week, settling down $1.27, or 1.9percent, to $65.18 a barrel, its lowest since April and down about 8 percent from the previous week. U.S. West Texas Intermediate (WTI) crude for September settled down $1.37, or 2.2percent, to $62.32 a barrel on Sunday, to lose more than 9percent for the week.

“The debacle in Afghanistan has attracted a lot of attention in the middle east,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.

“Oil prices are instead trading lower as fears around a slowdown in Asian demand overpowered hopes for supply disruptions in case the instability in Afghanistan spreads beyond its borders,” the analyst said.

Futures contracts suggest that the market expects plenty of supply in the coming months. The premium for the front-month Brent contract over the third-month contract has nearly halved between late July and now, indicating that near-term supply will not be as tight as the market had expected.

“The oil market is currently very volatile, how other Middle Eastern countries react to Afghanistan’s development is very crucial for Brent,” Francisco Blanch, Bank of America commodity & derivative strategist, said in a note.