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Geopolitical risks at highest in half a century – Baker Hughes

The potential spread of the Israel-Hamas conflict threatens global oil supplies, the CEO of the energy services firm has saidGeopolitical risks at highest in half a century – Baker Hughes

Geopolitical risks at highest in half a century – Baker Hughes

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Growing global uncertainty amid the conflicts in Ukraine and the Middle East could have a negative impact on the world’s oil and LNG supply, Lorenzo Simonelli, chief executive of Baker Hughes, told the Financial Times this week. 

According to Simonelli, the rising instability could have similar economic consequences as the ‘Oil Shock’ crisis of 1973–74. During that period, the world saw skyrocketing energy prices and fuel shortages after Arab oil-producing nations imposed an embargo in response to Washington’s support for Israel in the Yom Kippur War. The price of a barrel of oil nearly quadrupled in less than a year, adding to the factors that caused a decade of high inflation and stagflation in the US during the 1970s. 

“From a historical context I’ve heard people say, you go back to the oil embargo of 1973 – that being somewhat similar,” Simonelli said. “But in my tenure, no [the geopolitical climate has not been this fragile – FT]. This is, from a political standpoint, very fluid.” 

The Baker Hughes CEO pointed out that the Israel-Hamas conflict had not “changed the outlook” for oil supply or demand as Israel is not a significant producer of crude. However, according to experts cited by the FT, a major intervention by Iran could drive up prices. “Base case is that this is hopefully contained within the situation that it is currently – sad as it is – and things continue to be tight. But clearly, if there’s a worsening and deterioration and an escalation of the situation, things will change,” Simonelli argued.

Israel-Hamas conflict may cost global economy $2 trillion – Ernst & Young

Israel-Hamas conflict may cost global economy $2 trillion – Ernst & Young

READ MORE: Israel-Hamas conflict may cost global economy $2 trillion – Ernst & Young

Baker Hughes is a leading supplier of liquified natural gas equipment, and Simonelli highlighted that the company had a large number of LNG contracts. He claimed that Russian pipeline gas had little prospect of re-emerging in the short term as a competitor to LNG, even if the conflict in Ukraine ends. “I think Europe has been shown the difficulties of being so dependent on one energy source,” he said.

According to Simonelli, a warm winter last year and efforts by the EU to build up stocks have helped to avoid a reoccurrence of the 2021 energy crisis, when gas prices in the region spiked over €300 ($320) per megawatt hour amid the bloc’s decision to shift away from Russian supplies.

“There is a slight sigh of relief right now, because it seems still like a relatively mild winter at this moment. But if there’s a serious winter, it’s still going to have an impact on Europe,” said the CEO.

Simonelli noted that the buildup of LNG projects on the US Gulf Coast would continue as American exporters look to meet booming demand from the EU.

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