Red Sea tensions won’t de-escalate anytime soon, says Energy Aspects’ Amrita Sen

Amrita Sen, founder and director of research at Energy Aspects, joins ‘The Exchange’ to discuss the outlook of oil prices, the impact of the Red Sea crisis, and more.

GENTLEMEN, WE’LL LEAVE IT THERE. STEVE, WE’LL SEE YOU NEXT HOUR. OUR STEVE LIESMAN AND MIKE ENGLAND. >>> MORE CROSS BORDER FIGHTING IN THE MIDDLE EAST PUSHING OIL PRICES HIGHER TODAY, AND SPURRING OPEC PLUS TO ANNOUNCE A MONITORING MEETING ON THE FIRST OF FEBRUARY.

THIS FOLLOWS IRANIAN REPORTS OF EXPLOSIONS AT AN EVENT HONORING ONE OF ITS GENERALS KILLED FOUR YEARS AGO IN A U.S. AIR STRIKE. AT LEAST 103 PEOPLE HAVE BEEN KILLED. LEBANON’S HEZBOLLAH AND RUSSIA’S PUTIN CONDEMNING THE INCIDENT WITH PUTIN SENDING CONDOLENCES TO IRAN.

ON TOP OF ALL OF IT, HOUTHIING ATTACKED A 24th CONTAINER SHIP ON THE RED SEA OVERNIGHT, AND MY NEXT GUEST SAYS THE U.S. WILL ATTACK HOUTHI TARGETS IN THE NEXT WEEK OR TWO. WELCOME. PUT THAT INTO CONTEXT. HOW WOULD THE EMERGENCY MARKETS

TAKE IT IF THOSE STRIKES DO HAPPEN? >> LOOK, I THINK SO FAR WHAT WE HAVE SEEN IS BOTH THE RED SEA AND GEOPOLITICS, WE HAVEN’T SEEN PRICES REACT MUCH, IN PART BECAUSE FUNDAMENTALS ARE SOFTER FOR CRUDE RIGHT NOW. WE HAVE SEEN SOME INVENTORY GO TOWARDS YEAR END.

THAT’S WHY THE MARKET ISN’T SENSITIVE TO THIS. EVEN IF THERE ARE ATTACKS, WE ARE NOT EXPECTING ANY OIL SUPPLY LOSSES ON THE BATTLEFIELD, AND THE MARKET IS GOING TO REALLY LOOK FOR SPECIFIC SUPPLY DISRUPTIONS THAT ACTUALLY HELPS TIGHTEN BALANCES BEFORE WE SEE A SIGNIFICANT INCREASE IN PRICES.

>> AND TO THAT POINT, I GUESS THE LARGER QUESTION IS WHAT IT WOULD SIGNIFY FOR THE MIDDLE EAST MORE BROADLY. SO WE HAVE SEEN THIS ESCALATING TENSION, EVEN AS THE OIL PRICES REMAIN RELATIVELY CALM. >> YEAH. I THINK YOU COULD ARGUE THAT OUR

OIL PRICES ARE JUST NOT REFLECTING SOME FORM OF GEOPOLITICAL RISK. IT ISN’T RIGHT NOW, AND IS THAT FAIR? THE CHALLENGE WE HAVE RIGHT NOW IS THAT CRUDE DEMAND SEASONABLY IS WEAKER. PRODUCT MARKETS ARE TIGHTER, AND I THINK THAT’S KIND OF WHERE THE IMBALANCE IS RIGHT NOW.

BUT WE ARE LIKELY TO SEE AND ONCE YOU KIND OF STOP REALIZING INVENTORIES ARE STILL RELATIVELY LOW, ESPECIALLY VERSUS THIS TIME LAST YEAR. AND IF WE START TO GET SUPPLY DISRUPTIONS, THEN YOU ARE GOING TO GET — THE MARKET IS GOING TO PAY MORE ATTENTION TO THESE

ATTACKS IN THE MIDDLE EAST. AND YOU HAVE LISTEN SEEN A LOT OF SHIPS DIVERT. IT JUST MEANS YOU’RE GOING TO TIE UP SHIPPING ON MUCH LONGER ROUTES, WHICH MEANS ASIA HAS TO PAY A HIGHER PRICE, AND IT DOES AFFECT INFLATION OVERALL. >> ANOTHER HEAD WIND FOR CHINA

PERHAPS OR FOR THE REGION. I’M CURIOUS, IF IT’S THE CASE AS I SAW AN ANALYST PUT IT THAT THE HOUTHIS RULE THE RED SEA RIGHT NOW, WHAT MORE IS THE INTERNATIONAL COMMUNITY GOING TO HAVE TO DO TO GET PASSAGE BACK AND NORMALIZE SUPPLY CHAINS AND

HELP WITH OIL PRICES AND ALL THE REST OF IT? >> WELL, I THINK IT’S A GREAT QUESTION. WE JUST HAVEN’T SEEN EVEN WITH U.S. CARRIERS ATTACKING AND DESTROYING SOME OF THESE HOUTHI SHIPS, THAT THE COUNTERATTACK OR THE ATTACKS FROM THE HOUTHIS HAVE NOT STOPPED. IF ANYTHING, THEY CONTINUE.

SO I’M NOT EXPECTING A DEESCALATION IN THE RED SEA ANY TIME SOON. I THINK THAT’S WHERE THE REAL RISK LIES. RIGHT NOW, THE MARKET IS COMP COMPLACENT, BUT THESE THINGS DON’T TAKE A LOT OF TIME TO TURN. IF YOU GET ANY DISRUPTION, WHICH

IS ALREADY CAUSING QUITE A BIT OF DIVERSION FOR THESE SHIPS, WE’RE JUST GOING TO NEED A PROCESS TO GO UP EVEN FURTHER TO ACTUALLY REFLECT WHAT IT WOULD MEAN A PRETTY SIGNIFICANT IMBALANCE. THERE IS A RISK THAT THAT DOES HAPPEN. >> THERE’S A JOINT STATEMENT

POUT OUT BY THE UK AND OTHER COUNTRIES SAYING WE CALL FOR THE END OF HOUTHI ATTACKS OF COMMERCIAL VESSELS, AND THE RELEASE OF UNLAWFULLY DETAINED VESSELS AND CREWS, SAYING THE HOUTHIS WILL BEAR THE CONSEQUENCES SHOULD THEY CONTINUE TO THREATEN THE FREE

FLOW OF COMMERCE IN THE REGION’S CRITICAL WATERWAYS. THIS IS AN EXTREMELY WORDED STATEMENT, BUT STATEMENTS DON’T AMOUNT TO MUCH. >> EXACTLY. THE POINT IS THAT WE HAVE SEEN SOME OF THESE HOUTHI CARRIERS OR BOATS BEING DESTROYED, AND THAT HASN’T DETERRED THEM WHATSOEVER. IF ANYTHING, WE ARE SEEING

CONTINUED ATTACKS ON VESSELS THAT DO — THAT ARE STILL GOING THROUGH THE RED SEA. IF ANYTHING, WHAT YOU ARE GOING TO SEE IS MORE AND MORE WESTERN COMPANIES SAYING YES, WE HAVE TO EAT THE COST, BUT WE ARE NOT WILLING TO SEND OUR SHIPS THROUGH THAT ROUTE.

THAT IS THE REAL OUTCOME RIGHT