Energy Risk Debates: the Iran conflict and the widening mandate of the risk manager 

One benefit of the alarming frequency with which ‘100-year events’ occur these days is that firms are now much better prepared for crisis events. 

This was evident at the outbreak of the Iran-US war, panellists said. For many large energy firms, the initial response – understanding exposures, tracking cargoes, calculating market and credit risk – went relatively smoothly. 

Now, firms are extending their playbook from a short-term volatility focus to look at longer term second-order risks like the macroeconomic headwinds that could occur if the crisis were to last for 12 months, for example. Risk teams are also broadening their focus to include areas of risk that could ramp up due to the crisis, such as credit and liquidity risk, and wider operational risks like supply chain risk and cyber security. 

While a divergence between physical and front-month derivatives prices might currently require a specialised focus on different time segments, overall, risk teams are focusing on the linkages and interdependencies across their enterprises, the panellists agreed. A focus on enterprise risk management has many benefits, especially at times of crisis. 

When it comes to credit risk, having robust procedures and policies in place, especially around Know Your Customer, enables a much smoother response to any crisis event that might occur.   

Panellists

Liana Snyders, senior vice-president & chief risk officer at NRG Energy.

Glenn Labhart, senior partner at Labhart Risk Advisors.

Lynne Rhode, senior vice-president & chief risk and compliance officer at Hope Utilities.

Key discussion points

1.32 [Question to Liana]: How has your day-to-day risk management workflow at NRG been impacted by the Middle East crisis? 

4.35 [Question to Glenn]: What have you seen firms struggling with since the start of the Middle East crisis? 

7.53 [Question to Glenn]: How are people reacting to the current wide discrepancy between physical and financial prices? 

10.40 [Question to Lynne]: As a regulated utility, has your workflow been impacted much since the start of the Middle East crisis? 

13.22 [Question to Liana]: Crisis events and AI are highlighting the interdependencies between markets and risks. How is this impacting you? Are you monitoring more risks now than you did in the past? 

16.07 [Question to Lynne]: How has enterprise risk management evolved in recent years? Are you applying a more quantitative approach now and are you finding linkages you may not have been aware of before?

18.11 [Question to Glenn]: Do you think energy companies in general are trying to achieve more holistic risk management now?   

21.05 [Question to Lynne]: As a CRCO, how do you monitor and respond to potential increases in credit risk, especially in your supply chain?

23.26 [Question to Liana]: How do you think about credit risk over the longer term as a retail and wholesale energy supplier? How do you think of it in terms of supply chain risk?

26.54 [Question to Glenn]: At the firms you work with, are credit and supply chain risks a greater concern now and what should firms do as a result?