Middle East tensions may impact OFFO’s debt repayment strategy

Rising tensions in the Middle East, particularly between Israel and Iran are anticipated to push global crude oil prices higher, potentially impacting the Oil Fuel Fund Office’s (OFFO) debt repayment strategy, according to a spokesperson from the Energy Ministry.

Uncertainty surrounds whether the United States will back potential Israeli strikes on Iran’s oil infrastructure, raising concerns about oil price volatility, as reported by media outlets.

Tehran launched at least 180 missiles at Israel in response to Israeli assaults on Gaza and Lebanon, as well as the deaths of leaders from Hamas and Hezbollah.

An anonymous official stated that continued Israeli retaliatory actions would almost certainly cause a spike in global crude oil prices.

Crude oil future prices surged following US President Joe Biden’s announcement that Washington would discuss the Israeli-Iranian conflict with Israel, according to media reports.

On October 3, Brent crude oil prices increased by 4.8%, closing at US$77.4 per barrel for November delivery. Meanwhile, West Texas Intermediate crude oil prices rose by 5.1%, reaching US$73.6 per barrel.

Citigroup analysts predict that a significant Israeli strike on Iran’s export capacity could remove 1.5 million barrels of crude oil from the market daily, thereby reducing global supply and driving up prices.

In August, Iran’s oil production reached a six-year peak of 3.7 million barrels per day.

Clearview Energy Partners, a research firm, indicated that Israeli attacks on Iranian energy infrastructure would likely raise oil prices by US$13 per barrel. If the Strait of Hormuz were to be closed, prices could jump by US$28 per barrel, the firm noted.

Such scenarios would adversely affect the financial health of the debt-laden Oil Fuel Fund, managed by OFFO.

Previously, OFFO officials suggested that the debt repayment period could be shortened, with the potential to clear all debts by 2028, as global oil prices had dropped from over US$80 per barrel to just above US$70 in August, the spokesperson added.

The government utilises the fund to stabilise domestic oil and gas prices. While higher global petroleum prices have led to increased price subsidies, lower prices could enable authorities to collect more levies from oil consumers.

As of October 1, the fund reported losses amounting to 99 billion baht.

The official stated that escalating conflicts in the Middle East would make it impossible for OFFO to settle its debts as planned, reported Bangkok Post.