Wednesday, 20 January 2016

Sitrep - 20 Jan, 2016

After years of heavy sanctions on Iran’s finance and oil industries, an agreement between the US and Iran started to lift many of those sanctions this week. The immediate beneficiaries will be Iran’s oil industry as representatives of many oil majors begin to fly into Tehran hoping to negotiate access to the country’s large energy fields.

However, Iran’s energy infrastructure is dilapidated, having sat essentially in disuse for the better part of a decade. In order to reach the government’s stated goal of 1 million barrels of oil per day by the end of the year, the initial investments from oil majors will need to be directed first into upgrading the extraction infrastructure before more crude oil can be pumped. And in a world of drastically low oil prices, these investment decisions will be hard to justify, potentially dampening Iran’s optimism of returning to the international community.

The global crude oil price fell to below $30 per barrel this week as many crude producers refuse to lessen their already phenomenal output. Saudi Arabia and its Gulf allies are planning to maintain their high production rate, however Oman in a notable separation announced this week it would work to decrease its output. Oman hopes other Gulf States will follow its example, otherwise it may suffer negative consequences alone.

Politics is a deep factor for current oil price. The re-entry of Iran’s oil to the market was telegraphed for many months, and Saudi Arabia aimed to undermine its rival’s return by weakening the prices to scare off investors. This strategy appears to be working. Riyadh and Tehran are competing for influence in the Middle East and fighting a number of proxy wars to achieve this. Regarding low oil prices, Riyadh is rearranging its social spending and tax schemes in preparation for long-term low prices.

Closer to home, between three and seven Islamic terrorists attacked Indonesia’s downtown Jakarta on January 14. Security forces were able to engage and kill the gunmen after four people were killed. Although the attack site was an extremely soft target (crowded streets at lunch time), the low death number displays the amateurishness of the terrorists. Indonesia has coped with an undercurrent of Islamic extremism for decades, however the ideology has failed to take root.

Although these terrorists claimed allegiance to the Islamic State (IS), it was simply rebranding rather than a true extension of IS territory. Introduced to Southeast Asia via trade routes rather than conquest, “tropical Islam” is far different in Indonesia than the Middle East. As a result, jihadism is not widely appreciated which denies militants a population base and strangles the ideology before it gains traction. These attacks probably do not constitute a nascent terror campaign in Indonesia.

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