The world promised them happiness in the face of falling oil prices. The conflict between Iran and Israel has sharply reduced it.
The world is paying close attention to the Middle East. Iran’s reaction to Israel and the recent launch of missiles around Tel Aviv have already been noticed. Markets fear an escalation of the conflict, and we immediately noticed the first warning: the price of oil skyrocketed in less than 24 hours.
A barrel of Brent is rising in price by more than $5 day by day. According to Trading Economics, a barrel of Brent is already close to $76. Yesterday, before the Iran attack, it was below $71. This is an increase of about 3%. In the case of a barrel of West Intermediate oil, the US benchmark, growth exceeded 5%.
Iran is a key oil producing country. Fear of war between Israel and Iran, since the latter is one of the world’s main oil producers and has large reserves, is driving up oil prices.
Iran is the world’s ninth largest producer and the third country with the largest reserves. It is a member of OPEC and produces about 3 million barrels of oil per day, accounting for 3% of global output.
Oil has been falling for several months now. The situation in the Middle East is now the main factor in rising oil prices. The truth is that analysts expected oil to be very cheap by the end of the year, even below $50, according to Saudi Arabia’s forecasts.
The global economy is outpacing inflation and demand in China is weak. Despite the fact that OPEC has not yet disclosed its reserves of millions of barrels.
Can conflict change all plans? This causes great doubt for the oil market and, consequently, for the global economy. Oil is forecast to remain cheap by the end of the year, driven by the economic downturn. However, Israel and Iran can quickly change the situation. As happened with Russia and Ukraine, military conflict can have enough impact to change prices.
Iran has no plans to go to war yet. According to Iran’s CNN representatives, the Islamic country does not want the conflict to escalate and go to open war with Israel.
Naeem Aslam, chief investment officer at Zaye Capital, explains that “oil traders are not currently considering the possibility of a full-scale war with Iran, as in such scenarios oil prices would likely skyrocket and the only significant price level they could easily the coverage will be $100. The fact that oil has risen in price by a few dollars is symbolic of the tension of the moment, but if the forecast of war had truly been believed, the price would have skyrocketed much more.
20% of the world’s oil passes through the Strait of Hormuz. Situated between Oman and Iran, it is one of the most important geopolitical regions in the world.
More than 21 million barrels of oil pass through the area every day, according to a U.S. Energy Information Administration (EIA) report. This represents approximately 21% of global consumption.
If there is a war, we could see up to $250 a barrel. That’s the warning issued last year by Bank of America, warning that if the safety of the Strait were affected, oil and gas prices could soar to previously unseen levels.
All seemed calm with the economy slowing, but just when it seemed like we were overcoming the fallout from the conflict with Russia, another one pops up in the Middle East. The price of oil simply sneezed.
Image | Abadan oil refinery
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