Energy security and supply issues have dominated the first-half of 2022 as the geographical spread of attacks on commodity infrastructure has broadened since Russia’s invasion of Ukraine, the latest update of S&P Global Energy Security Sentinel research project showed.
The investigation conducted by the Platts news team at S&P Global Commodity Insights shows there has been a total of 63 security incidents and attacks on energy infrastructure in the first six months, a 250% increase from a year earlier.
Russia’s war in Ukraine has contributed significantly to the uptick in geopolitical risk. Energy infrastructure and shipping has been disrupted in the war zone with pipelines, power plants and refineries targeted. According to reports collected by Platts there have been 41 security incidents and attacks on energy infrastructure in the conflict zone since the war began.
“The oil market impact from the Ukraine war has highlighted the most important geopolitical shift for oil markets over the past decade, which stems from sectoral sanctions becoming the preferred Western method for waging conflict,” said Paul Sheldon, chief geopolitical advisor at Platts Analytics.
The uptick in geopolitical risk highlighted in the research has seen a dramatic increase in volatility and prices across a range of commodities in the period.
Dated Brent assessed by Platts has increased by 53% in H1 2022 and closed July 12 over $108/b. Natural gas prices in Europe have more than doubled, triggering a cost of living crisis and rampant inflation.
Russia’s invasion has clearly demonstrated how no oil producing region is immune to supply disruptions, which historically have plagued the Middle East.
According to analysis by Platts Analytics, the equivalent of approximately 4.6 million b/d of crude, equivalent to 5% of global supply, has been displaced temporarily due to a mixture of security incidents like attacks, geopolitics and adverse weather events over the last five years.
“The market impact from Russia’s invasion of Ukraine differs dramatically from most geopolitical supply disruptions since 1973, as export dislocations and potential production shut-ins are triggered entirely by consuming countries voluntarily restricting oil supply,” added Sheldon.
Iraq in focus
Excluding Libya, the Energy Security Sentinel project shows incidents in the Middle East — a traditional hotspot for geopolitical risk linked to oil and gas production — were focused on Iraq in the first-quarter of 2022.
As tensions between Baghdad and Erbil spilled into the energy sector, some of the oil and gas fields located in the semi-autonomous region of Kurdistan have been targeted.
According to analysis of reported incidents there were eight attacks in the Middle East in the three months ending June, compared with 10 in the same period a year earlier.
Prior to the recent lull in attacks, the geographical range of security events was seen spreading across the Arabian Peninsula to the Strait of Hormuz and the east coast of the UAE. Since 2017, the Gulf of Oman, Red Sea and the Bab al Mandab chokepoint have experienced the majority of maritime and onshore attacks. A total of 87 incidents have been verified and reported by Platts through June 30, 2022.
Energy security has been brought into even sharper focus since Russia’s invasion of Ukraine raised concerns over potential disruptions and shrinking global spare capacity for both oil and gas.
The latest analysis by Platts Analytics of OPEC+ spare capacity shows that only Saudi Arabia and the UAE have the ability to bring a combined 1.5 million b/d of crude onto the market, underscoring the Middle East’s critically important role as a supplying region.
The Middle East accounts for over 30% of the world’s supply of seaborne crude but the impact of security incidents on oil infrastructure in the region on the price of physical oil has been modest. Oil futures almost tripled at the peak of hostilities during the Tanker War in 1984.
Cyberattacks on energy and commodities infrastructure are also on the rise, with 39 major incidents recorded over the last five-year period, according to the Energy Security Sentinel.
Oil assets and infrastructure emerged as the biggest targets for hackers and cyberattacks since 2017, accounting for a third of all incidents over the period. Electricity networks were the next most vulnerable, making up a quarter of all incidents.
There were seven cyberattacks targeting the energy and commodities sector globally in H1 2022, compared with three in the same period a year earlier, data from the Energy Security Sentinel showed.
Europe’s oil products sector was hit earlier this year when a cyberattack targeted loading facilities in Germany and spread to key terminals in the Amsterdam-Rotterdam-Antwerp (ARA) network. A total of 17 terminals (11 in Germany and six in ARA) were affected, Platts reported Feb. 3.
Cyberattacks have emerged as a growing threat to commodity supply chains and companies are starting to prioritize cyber security. Last year, incidents included a ransomware attack by hackers on Saudi Aramco, the world’s largest single exporter of crude, which involved a data leak and an attempt to extort $50 million from the state-controlled oil producer.
Commodities, energy and resources assets in the US have been targeted more than any other nation, accounting for a third of all cyberattacks since 2017, according to the updated Oil Security Sentinel. The UK and Saudi Arabia were the next most targeted countries, with five and three attacks.