Wednesday, 5 October 2016

Sitrep - 5 October, 2016

Shockingly for the Colombian political class, a peace deal between the government and the Marxist militant group Revolutionary Armed Forces of Colombia (FARC) failed to ratify in a plebiscite. The deal was four years in construction and attempted to end the 52-year insurgency.

However, the Colombian public narrowly rejected the agreement as being too lenient on members of the group and disliking a suggestion of FARC’s political participation. A central factor of the agreement for FARC was amnesty for its thousands of killings over the years. Of the drastically low 37% turnout, voters clearly thought this unacceptable.

It is unclear whether negotiators can return to Havana and find a new compromise. Although FARC may be able to shift slightly on issues, factions within the group may not wish to do this, and the group could splinter. The government now races against time before elections in 2018 to form a new deal, but the rejected vote may effectively be the end of the peace attempt.

The Organisation of Petroleum Exporting Countries (OPEC) has worked with Russia to finally agree to a supply halt. Although nothing is finalised, and won’t be until OPEC November meeting in Vienna, the proposal doesn’t represent a significant amount of the cartel’s total oil produced and it is unclear which of the members will shoulder the cut.

It appears the decision is built to stop oil prices dropping further, rather than stimulate them. The cartel’s control over global prices is nowhere near its strength in prior decades and its recent goals have been to carve away market share from competitors. Yet the US, Canada and Kazakhstan all expect to bring online significant oil fields in the next few months.

Russia and Saudi Arabia both have an interest in attempting to stop the decline of oil prices: buying time. Neither government were prepared for oil prices dropping off a cliff in 2014. So while short term relief may be useful for OPEC, any lift in crude oil prices will only encourage agile US shale drillers and others to return to the market, cancelling out any effect of the recent deal.

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