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Situation in the Middle East and possible implications for BA

Situation in the Middle East and possible implications for BA

Old Jan 3, 20, 12:43 pm
  #1  
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Situation in the Middle East and possible implications for BA

We have no idea yet how the Iranian regime will react to yesterday’s events (the merits of which I do not want to get into on here) but it has doubtless occurred to many people that there could be a significant escalation of conflict in the Middle East now. I have spoken to friends, colleagues and clients in the UAE, Israel and Saudi and there is tremendous nervousness about what may be around the corner.


Apart from obviously hoping things de-escalate, it did occur to me that the implications for BA may be profound. Off the top of my head, at least the following must be keeping some from sleep at IAG:


- a further surge in oil prices for which there is inadequate forward hedging protection;


- the need to re-route certain flights to SE Asia (SIN, BKK, KUL, etc) and the associated impact on timings and logistics;


- the need to step up security checks across the entire network, and again the implications for timings and logistics;


- the suspension of certain routes including DXB, DOH and AUH due to safety concerns; and


- the possibility of certain Middle Eastern airports having to close to civilian traffic and, in extremis, EK, QR and EY having to suspend all of their commercial operations.


What are people’s thoughts? It seems a little callous worrying about this stuff right now as we teeter on the brink of such a serious situation but thinking this stuff through can be helpful.
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Old Jan 3, 20, 12:56 pm
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Same as before with trouble in the area really, it wont just effect BA but likely all carriers.
Until we see what tit for tat happens and how far it escalates no one can know. We are booked to TLV in late April and already people are saying we shouldn't go. I have no intention of cancelling though unless FCO advise is not to travel there.
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Old Jan 3, 20, 1:04 pm
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How many posts before this descends into OMNI (notwithstanding the fact that I believe the OP is absolutely honest in saying he/she doesn't want it to). Place your bets between 1 and 10 below! On the substantive question on any impact on BA, at this stage, to be honest, this is "crystal ball" territory.
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Old Jan 3, 20, 1:04 pm
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Hope you are over thinking it. But I suspect the Buterflys Wings might affect OW more broadly than BA. CX less obviously than QR. But given how unstable they are from the unrest this may be the final straw.
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Old Jan 3, 20, 1:09 pm
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It was interesting last month on our QR flight from DOH to CPT ... we flew north from DOH to the Iranian coast before turning right through the Straits of Hormuz and finally heading south to CPT. And that was just a local inter-Arab squabble.

I suspect there will be some ‘interesting’ ramifications after today’s event. Mercifully we’re not going anywhere near Arabia in the foreseeable future.
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Old Jan 3, 20, 1:12 pm
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Qatar is at risk of being shut off entirely...
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Old Jan 3, 20, 3:06 pm
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Originally Posted by FlyingScientist View Post
Qatar is at risk of being shut off entirely...
When do the World Cup Footy tickets go on sale?
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Old Jan 3, 20, 3:37 pm
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My proverbial boots will be on the ground in about 40 hours, heading back to my nest in Dubai.

The retail company I work for has not issued any escalated warnings about regional market travel; in fact, the only advisory at the moment remains to stay away from northern Syria unless that's your provenance.

My counterparts in Isfahan and Shiraz have said there are several hotspots in Tehran, particularly in the embassy quarter, however this conflict remains very much a "top-level disagreement" in the sense that everyday Iranians have not much input, influence, or knowledge of what's going on behind closed doors in Tehran.

Riyadh continues its merry festivities with Riyadh Season.

It's in no one's best interests to escalate this (certain reelection campaigns aside) with expo 2020 coming up and KSA's efforts to open Its borders .

ETA: aside from a 30 minute detour to avoid Arabic Iraqi airspace and or northern Syria (as they have always done) i dont see anything extraordinary happening unless further political machinations occur.
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Last edited by BA Humbug; Jan 3, 20 at 3:46 pm
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Old Jan 3, 20, 3:44 pm
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I suspect the OP has covered the worse case scenarios, but I suspect the implications for BA are actually more likely less severe, a temp spike in oil prices, likely temp avoidance of Iranian airspace and a circular to Middle East staff to remind them to be vigilant, it will then I suspect calm down for a few months back onto the summer that it has been on for the last few years with various hot spot spikes. I will happily bore anyone with my thoughts on the SOH incidents, but respecting the OP’s and FT rules, I’ll save it for another time offline (where one can at least invoke Chatham House rules).
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Old Jan 3, 20, 4:20 pm
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Any spike in oil prices will be tempered by the fact that the United States is now the worlds leading oil producer, with the ability to produce more if needed.
This will keep any price increase in crude mild.

Secondly, Saudia Arabia has no desire to see disruption in oil flow (the cause of an oil price spike) as it needs oil flow to keep its kingdom stable. Even Iran can not afford to stop selling oil, it needs the revenue to feed its starving and increasingly unruly people.

The major impact of what's going on now in the Middle East will be wide rerouting of flights around Iran air space similar to that with Ukraine after the airliner shoot down. No carrier's insurance coverage will be valid in a potential war zone.

If Iran tries to induce conflict, therefore, it will likely be outside of the Middle East with terror strikes in US, Africa, and Europe.

Expect long security lines, more stringent security measures (Belts, shoes, lap tops, liquids, and more) and many countries announcing travel warnings to different areas of the world.
Bad year ahead for the tourist industry.
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Old Jan 3, 20, 6:24 pm
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Originally Posted by mnhusker View Post
Any spike in oil prices will be tempered by the fact that the United States is now the worlds leading oil producer, with the ability to produce more if needed.
This will keep any price increase in crude mild.
Iran produces 20% of the worlds crude oil demand, the US can't step up production to meet that demand if Iran was blockaded. The nature of the US oil reserves is very different than those in the Middle East as well, the rock is of much poorer quality, so the wells tend come on strong initially and decline quickly. The Middle East oil is much easier to recover and the decline curve is very gradual. The wells in the Middle East can have production ramped up quickly, the US wells much less so.

Saudi Arabia could make up the extra production, certainly in conjunction with Russia, but depending on what happens next Saudi may not be able to export any extra oil they produce, or if there is another attack on production facilities their output might be reduced as well.

Historically we know that instability in the Middle East ( or more than usual instability) will push oil prices up, and that will certainly affect all airlines.
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Old Jan 3, 20, 7:31 pm
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From Q3. 2019 results, IAG are already well hedged and protected against upwards swings in the fuel price. Nothing to see here really.
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Old Jan 3, 20, 7:32 pm
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I would beg to differ, your facts are out dated.

Currently Iran produces only 4% of the worlds crude only supply due to the fact that the world embargo on goods has prevented Iran from updating their exploration, pumping, storage and refining facilities for the last 20 years.
https://www.eia.gov/tools/faqs/faq.php?id=709&t=6

Not only do they not produce as much oil but the cost per barrel is much higher than their Middle Eastern neighbors due to this lack of modernization. Less "bang per barrel sold" if you will, so they really cant afford to not sell oil for very long or their economy collapses.

The US gets crude out of the ground just as well as other producers, where we have issues is that we have not built a new refinery to process crude into final products in the last 30 years. It would take 3-5 years to unleash refining capacity but only non- US countries would suffer from that time lag as opposed to the situation in the 1970's when the Arab countries had the whole world at their mercy.

Main countries at risk would be China and the EU who rely on the Middle East almost exclusively for petro products beyond Russian gas and heating oil for the EU.


All the best.
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Old Jan 5, 20, 11:00 pm
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Well BA277 LHR-HYD is now taking a detour. Last year's geopolitical problems had to avoid / fly below Pakistan and up the Persian Gulf.

Now it is going above Iran.

Jan 4

BA277 original route over Iran



Jan 5


BA277 Detour as of Jan 5
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Old Jan 6, 20, 12:35 am
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Originally Posted by mnhusker View Post
I would beg to differ, your facts are out dated.

Currently Iran produces only 4% of the worlds crude only supply due to the fact that the world embargo on goods has prevented Iran from updating their exploration, pumping, storage and refining facilities for the last 20 years.
https://www.eia.gov/tools/faqs/faq.php?id=709&t=6

Not only do they not produce as much oil but the cost per barrel is much higher than their Middle Eastern neighbors due to this lack of modernization. Less "bang per barrel sold" if you will, so they really cant afford to not sell oil for very long or their economy collapses.

The US gets crude out of the ground just as well as other producers, where we have issues is that we have not built a new refinery to process crude into final products in the last 30 years. It would take 3-5 years to unleash refining capacity but only non- US countries would suffer from that time lag as opposed to the situation in the 1970's when the Arab countries had the whole world at their mercy.

Main countries at risk would be China and the EU who rely on the Middle East almost exclusively for petro products beyond Russian gas and heating oil for the EU.


All the best.
Actually, the amount of oil that Iran produces is large RLH irrelevant where the potential risk is with the Straits of Hormuz, the transit of products including but not limited to oil through the narrower-channel with contested water and the need to protect shipping, hence from a UK Perspectivr HM Ships MONTROSE and DEFENDER have been re-tasked during the heightened tensions, whilst other nations also have assets in the region.

Sadly, it is common that people in the UK often have little idea of what the Royal Navy do on a daily basis and how this influences their lives, but I need to get off my soapbox and hopefully not take the thread OT and into Omni that we are trying to avoid.
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