Iran war highlights vulnerability of fossil fuel infrastructure assets
With oil and gas pipelines in the firing line of the ongoing military escalation in Iran, institutional asset owners invested in global infrastructure funds are finding themselves exposed, new research shows
Asset owners that have committed capital to global infrastructure funds invested in oil and gas pipelines in the Middle East are discovering that some of the assets in which they invest have been damaged or destroyed, highlighting the vulnerability of fossil fuel infrastructure to geopolitical conflict, according to a report by Josephine Moulds for the Bureau of Investigative Journalism.
Energy infrastructure has emerged as a key battleground in the conflict, with oil ports and warehouses, gas pipelines, and processing facilities becoming targets of military attacks. The report suggests that these attacks could have knock-on effects for some of the world's largest global infrastructure funds.
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BlackRock’s $5bn Global Energy & Power Infrastructure Fund III and its $5.6bn Global Infrastructure Fund IV are among the funds affected by Iranian air strikes on Saudi Aramco gas pipelines and disruptions to the Jafurah gas processing facilities.
Other funds with exposure to the region include the IFM Global Infrastructure Fund, which is invested in the VTTI Fujairah oil port, reportedly struck by Iranian drones, and two Stonepeak infrastructure funds, which are invested, among other assets, in the Al Daayen LNG tanker, the Seapeak Bahrain LNG storage unit, and the Bahrain LNG terminal.
The research notes that any financial losses resulting from these attacks would ultimately affect asset owners invested in the funds. Various LGPS investors, including Border to Coast, West Yorkshire Pension Fund, Surrey Pension Fund, North Yorkshire Pension Fund, North East Scotland Pension Fund (Aberdeen), Scottish Borders Pension Fund, and Orkney Islands Council Pension Fund, are listed as investors. According to Preqin, other investors in BlackRock’s Global Infrastructure Fund include ALTERRA, CALSTRS, and the City of Baltimore Retirement Fund.
The asset managers in question did not disclose the scale of their exposure to the affected infrastructure assets. Commenting on the report, Border to Coast and IFM highlighted that their portfolios are widely diversified, helping to mitigate the impact of such attacks.
The war in Iran is likely to pose long-term challenges to global oil and gas markets, with some 1.1 billion barrels of oil already removed from global inventories, according to research by Guinness Investment Management. The manager estimates that at least 2 billion barrels of oil could be lost by the end of the year, even if hostilities cease immediately.
Over the medium term, global oil prices could rise to between $125 and $150 per barrel as countries will rush to shore up depleted inventories, the manager predicts. However, restoring damaged infrastructure is likely to present a range of challenges.
"At that point, reservoir pressures will have fallen, wax build-up will have occurred, and recovery is likely to be uneven," warned Will Riley, portfolio manager on the Guinness Global Energy strategy.
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