U.S. energy abundance has bestowed the country with additional sources of soft and hard power, but its use could disrupt geopolitical stability in the Middle East and affect oil markets, an analyst with a top bank said at a recent industry event.
Barclays Director and Head of Commodities Research Michael Cohen referred to remarks by U.S. Secretary of State Mike Pompeo made the prior week in Houston that U.S. oil and natural gas abundance would "strengthen our hand in foreign policy."
"That abundance has given U.S. government policymakers a perception of strength. But I think at the same time there are questions within the Middle East about whether the U.S. remains committed to being in the Middle East in the first place," Cohen told attendees of the American Fuel and Petrochemical Manufacturers annual meeting in San Antonio, Texas on March 19. "We all know our military bases will continue to be there for a long time. … But what matters is there is a difference between the perception and the reality."
Cohen said Middle Eastern countries "taking it upon themselves … to reach a foreign policy outcome that is contrary to what the U.S. may want … adds new danger to the geopolitical backdrop in the Middle East."
"I think it's important to understand that [the] connection between Saudi Arabia and the U.S. remains very tight and arguably is not going to change no matter how much light tight oil production increases," Cohen said. "If you're implementing sanctions policy with an eye toward regime change in Venezuela or regime change in Iran, and higher prices emerge irrespective of those policies, then we find ourselves with a sanctions policy that is not achieving those objectives."
On the other hand, Cohen said U.S. sanctions policy has "inserted a certain level of volatility in the market" and "exposed fiscal vulnerabilities in different countries in the Middle East."
"They don't know what the prices are going to be. They don't know how to plan for that," Cohen said. "There is this inevitable disconnect that is going to emerge in the coming years because if the marginal cost of shale … increases slightly, that's still going to be a far cry from the what the fiscal break-even is for Saudi Arabia."