Conflict near Sea Trade Chokepoint, Schlumberger Fined $232 Million
Prices of West Texas Intermediate (WTI) climbed above $50 for the first time in two weeks after multiple outlets reported conflict in the Middle East. Saudi Arabia has engaged in airstrikes on Yemen rebels who have forced the country’s president from the capital of Sanaa. Fellow OPEC producer Kuwait said it supports the strikes, while Iran denounced the attacks but denied plans for military involvement.
Yemen is not a significant player on the oil producing market (less than 150 MBOPD in 2013). Its production has been in decline since 2001 and its security for oil and gas operations are far from stable. The Energy Information Administration (EIA) reports there have been as many as 39 attacks on oil infrastructure since 2012. Yemen’s liquefied natural gas (LNG) sector has gained traction since it began capturing the resource in 2009, but the International Monetary Fund estimates a price of $215/barrel is needed to balance the country’s budget.
Yemen’s greatest significance, on a global scale, is its location at the southernmost part of the Red Sea. The Bab el-Mandeb Strait, an 18-mile wide opening with only two miles accessible for tanker traffic, is situated by Yemen. The strait was the fourth-busiest global chokepoint in 2013 (3.8 MMBOPD) and links the Indian Ocean and Mediterranean Sea, along with providing access to the Suez Canal. In the case that the strait is closed off, the EIA says tankers would be diverted completely around Africa.
Earlier today, Reuters reported four Egyptian naval vessels were en route to the strait with plans to secure shipping lanes. Jordan Perry, Senior Analyst for Verisk Maplecroft, told the Reuters that the oil price jump was simply an “overreaction.”
Schlumberger Fined $232.7 for Involvement in Iran, Sudan
The United States Justice Department handed down a fine of $232.7 million (ticker: SLB), ending a six-year investigation. Schlumberger, the world’s largest oilservice provider by market capitalization, pleaded guilty to violating the International Emergency Economic Powers Act with Iran and Sudan. A subsidiary of the company had illegally shipped American-made equipment to the sanctioned countries and disguised expenditure sheets by using vague abbreviations or general geographic areas. The business was conducted from an office in Texas – a major factor in the investigation
“This is a landmark case that puts global corporations on notice that they must respect our trade laws when on American soil,” said U.S. Attorney Ronald C. Machen. “Even if you don’t directly ship goods from the United States to sanctioned countries, you violate our laws when you facilitate trade with those countries from a U.S.-based office building.”
Schlumberger will also be subject to three years of probation, has hired an independent consultant to monitor its international operations, and has already ceased activity in Iran and Syria. Schlumberger representatives said the company fully cooperated with the investigation and was satisfied with the ruling.
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