Posted: 29 November 2019
In today’s volatile world, good intelligence has never been more important
In September, a swarm of drones and missiles crashed into the oil-processing facilities of Abqaiq and Khurais – the heart of the Saudi oil industry. It was the most devastating attack in the industry’s history, and the latest spasm of violence in a region that has witnessed a series of attacks on oil tankers and pipelines over the summer months.
In a matter of moments, 5% of global oil production capability was taken out, and the vulnerability of the Kingdom and the wider energy industry was laid bare.
It is not just overt attacks, such as those in the Gulf, that should give the oil and gas sector pause. The trade war between the US and China, the growing tensions in the South Pacific, spreading Islamist influence in sub-Saharan Africa, the political fragmentation of Venezuela and Libya, mounting social unrest in Iraq, Egypt and Algeria; all represent potential threats to the global oil supply infrastructure.
In such a volatile geopolitical landscape, it is vitally important to make the right decisions. And so for traders and producers alike, the value of good intelligence has never been higher.
Major global events cause sharp short-term spikes in the price of oil. For traders, who tend to deal in the short term, an understanding of the political and security conditions on the ground driving market-moving events can be highly profitable. Yet this kind of information is notoriously difficult to come by even for experienced traders, in part because unpredictable, ‘black swan’ events can occur at any time and in any place.
For the upstream players, predicting long-term trends can be more important. It’s here that the oil majors, with large in-house intelligence capacity, have an advantage, while their smaller counterparts, and indeed other links in the value chain, often flounder.
Uncertainty, disinformation, violent crime, corruption, war, political polarisation and cyber-threats all have serious implications for the oil and gas industries. Crucial to running a successful oil and gas business today is the ability to understand these phenomena and use that knowledge to inform corporate decision-making.
Intelligence in business is nothing new, and those organisations far-sighted enough to embrace it have long enjoyed its benefits. In-house corporate intelligence functions, however, have been slow to develop. Hubris at the top of the corporate pyramid played its role: even the best leaders sometimes think they know everything they need to know.
And because they speak to ministers, senior officials and suchlike, they believe they have a true picture of what is going on. Investing in the right tools and talent can also seem hard to justify when it comes to the bottom line, but intelligence is more than just a cost function. In today’s interconnected and unstable world, corporations cannot afford not to integrate intelligence into their businesses and change the way they assess risk.
There is an urgent need for this in the oil and gas sector. For producers, shipping companies, investors and others who form part of the wider industry, the safety of assets and employees has become a priority—not just in terms of short-term security, but protecting investments and relationships in the longer term.
Leadership teams have relied on intelligence to make decisions following attacks and other forms of disruption, and those who have made the best ones are, unsurprisingly, those who have access to the best information. These include the majors, such as Shell, who have long taken a forward-thinking approach to decision-making.
But they are in the minority. Other organisations still rely on the experience of the senior leadership team or a personal contact, and here emotion can easily get in the way. Even if a CEO has exceptional contacts, they may turn to the wrong person, and the consequences of taking poor advice and putting it into motion can be grave.
We have seen in recent years profound miscalculations based on elites talking to elites: former government officials and senior figures from business and other walks of life having conversations that might be good for Davos but miss critical undercurrents in popular opinion and grievances. For a sector whose main product is found in some of the most unstable parts of the world, and where grass roots engagement is critical, relying on a narrow circle of consultation is a serious problem.
What’s needed is a more nuanced understanding of intelligence. The best intelligence is a combination of unbiased information and objective analysis, drawing on a multiplicity of sources. Good intelligence has benefits for market entry, supply-chain audits, executive hiring, mergers and acquisitions and regulatory compliance; the best intelligence can help you to predict outcomes, identify future decision-makers and influencers, anticipate geopolitical developments and inform strategic decisions in the present.
As for crises, the best way to manage them is to see them coming from a distance. That is what intelligence, properly understood, allows you to do. What seems clear in today’s complex world is that knowing the truth has never been more important — nor harder to come by.
Charles Hollis, former UK-Saudi diplomat and Managing Director of Falanx Assynt, a global intelligence consultancy