The prolonged closure of Strait of Hormuz may reshape some global energy investment flows, but Middle Eastern dominance in low-cost oil will keep investors in the region, analysts at consultancy Wood Mackenzie toldon Thursday.
The Middle East will remain the epicenter of global energy supply due to its unmatched scale and production costs. The region accounts for a one-fifth of global upstream development spending and holds many of the world's largest low-cost oil resources, analysts said.
While new frontiers carry higher start-up costs, major Gulf producers retain an advantage with total production costs of below $10 per barrel compared to more than $23 for US shale and $34 for offshore Brazil.
"These are some of the lowest cost barrels in the world, they are still likely to remain absolutely competitive in the global marketplace," Fraser McKay, Head of Upstream Analysis at Wood Mackenzie, said.
Wood Mackenzie said higher shipping costs and geopolitical risk premiums could slightly improve the attractiveness of rival oil-producing regions such as Latin America, West Africa, and US shale.
The analysts added that countries such as Guyana, Argentina, and Mozambique could become relatively more attractive for new energy investment in the event of any diversification of supply away from the Middle East.
However, the consultancy does not expect a large-scale capital flight away from the Gulf. Instead, investors are likely to seek to "negotiate better terms with the host governments in the Middle East", McKay said.
This outlook comes at a critical time for global energy security.
International Energy Agency Chief Fatih Birol recently warned that current oil and gas disruption has now surpassed in gravity all past major crises, including the 75 billion cubic meters of gas supply llost after Russia's invasion of Ukraine.
The attacks have damaged more than 80 energy facilities across the region-including oil fields, gas sites, and refineries-with more than one-third categorized as very severely damaged, the IEA said.