Oil prices are now at their highest levels since July 2015. But so are geopolitical risks that now include unease about events in Saudi Arabia over the weekend.
In our view, the Saudi power consolidation is a sign that King Salman may soon abdicate to the 32-year-old Crown Prince in the coming months – perhaps after King Salman’s expected trip to the US early next year. However, the provocative recent moves in the Kingdom are making it look like the least smooth Saudi leadership transition in recent memory.
Until the transition of power is complete, there will continue to be heightened political risk concerns anew about the Kingdom.
We do not think recent events will derail the Aramco IPO or investor interest in it as all sides recognize the importance of the oil revenue in the Kingdom. In addition, we also see no impact on Saudi oil policy. The Saudis are now price hawks, and we fully expect a Saudi-led extension of the OPEC production cut deal at least through the first half of 2018.
Oil markets were already facing major geopolitical risks with Iraq's response to the Kurdistan independence bid, potential new US sanctions on Iran and an economic and political collapse in Venezuela. Now we can add an unsettled Saudi political environment and attempted Houthi-Iran missile attack on Riyadh to the mix.
Geopolitical risks have just spiked and oil prices are heading higher.
