Putin isn't the biggest threat to gas prices. It's this country instead, according to a chief strategist

When gas prices soared to a record high of over $5 a gallon in June, analysts and politicians were quick to blame the Russian invasion of Ukraine.
The Biden administration even called the rising fuel prices observed after the conflict "Putin's price increase". In the months since, however, gas prices have fallen about 26%, even as the war continues to escalate.
Now, researchers at an alternative wealth management platform called ClockTower Group argue that Russia's war isn't the biggest risk behind the recent drop in gas prices -- Iraq is.
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Marko Papic, ClockTower Group's chief strategist, notes that the US is trying to get Saudi Arabia to increase its oil production while trying to improve relations with Iran after the Trump administration broke the nuclear deal with Iran left Iran by 2015.
He argues that talks with both actors - who are known adversaries - would only serve to heighten tensions between the two regional powers, which could ultimately lead to a sectarian clash in neighboring Iraq, the world's fourth-largest oil exporter. And if Iraq's crude oil production is affected by this conflict, oil prices will surely rise, followed by gas prices.
"The real risk to oil supplies is tensions between Iran and Saudi Arabia, which are likely to rise dramatically as the US struggles to keep both sides happy," Papic wrote in a report Monday, adding that "Washington must choose between the two".
Bank of America's commodities and derivatives strategist Francisco Blanch echoed Papic's argument in a similar note Monday, writing that he sees Brent crude prices, the international benchmark, averaging $100 a barrel in 2023, with "production disruptions." a key upside risk in countries like Iraq.
A no-win scenario?
Papic believes the US could be in a lose-lose scenario in the Middle East. He argues that if the US spurns Iran by accepting a deal with Saudi Arabia for more oil imports, it will force the country to retaliate in Iraq by supporting militias to foment violence in the region. He noted that four times this year alone Iran has supported militias that have fired rockets at oil refineries and hit buildings near the US consulate.
He also explained that Iraq has traditionally served as a "buffer state" between Iran and Saudi Arabia, adding that the Iraqi oil city of Basra has already been the scene of Shia-on-Shia violence between Iran-allied gunmen this year men and Iraqis.
“Right now, most investors are focusing on Ukraine's offensive in Kherson and Kharkiv as relevant to oil prices. Given a possible menu of likely reactions from Moscow, that may yet emerge,” Papic wrote. “However, the biggest risk to global oil supplies may be the Shia-Shia conflict in Iraq… should nuclear deal negotiations fail.”
Negotiations for a nuclear deal with Iran are rocky and unlikely to be resolved any time soon.
At the same time, the world's second-largest crude oil exporter, Saudi Arabia, "will no doubt be upset" if the US strikes a deal with Iran, Papic added. This puts the Biden administration in a damn-if-you-do-damn-if-you-don't scenario.
"Our concern is that whatever choice the US makes, the backlash will somehow end up on Iraq's doorstep," Papic argued. "Two regional powers competing in a 'buffer state' would not normally be anything for investors to worry about. But that buffer happens to be the fourth largest crude oil exporter in the world.”
Papic argued that tensions between Iran and Saudi Arabia mean that "Iraqi domestic politics will assume outsized global relevance in the coming months."
"A civil war in the world's fourth largest oil-exporting nation would certainly add to the already abundant geopolitical risk premium in oil prices," he added.
While Papic didn't predict where oil or gas prices should go from here, he did argue that betting against oil for a quick profit no longer seems a viable option for investors.
“At the moment we cannot estimate how this will affect the markets. But with Brent crude prices already 26% off their June highs, the slight gains may have been made in short oil trading,” he wrote.
This story was originally published on Fortune.com

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