Middle East Tensions to be Diminishing Factor in Oil Prices

Dubai, United Arab Emirates, 22 January 2020, (AETOSWire): Just as tensions in the Middle East began to escalate, it seemed that regional, political and military factors will significantly influence oil price increase in the long term. Yet, it proved that no more than a week after a partial relief, crude oil prices are 10 % down, Gulf Brokers reported.

While price of Brent Crude oil marker grew to 70 USD per barrel shortly after the attacks, it declined to 64 USD per barrel on 16th January. Furthermore, price of West Texas Intermediate (WTI) declined to 58 USD per barrel compared to previous price of 65 USD per barrel shortly after the attacks.

Tensions between Tehran and Washington, which were triggered by US airstrikes in Iraq, escalated by Iran's attack on US-led forces in Iraq and culminated by plane crash in Tehran, undoubtedly caused negative sentiment in Asian markets and affected oil prices. There is no doubt that if the US-Iran quarrel escalated, the 'black gold' market would be hit severely and cause price growth in tens of per cent.

Export share through the Strait of Hormuz represents about 20% of global oil consumption, which is 21 million oil barrels daily. Suspension of the Strait of Hormuz could significantly affect export, however, suspension of the strait between Iran and Oman could be perceived as even more powerful impulse for oil prices on capital markets. Some estimations even argue that the value could be 100 USD per barrel, which is very close to price from 2014.

The weakest point of the chain could then be China, which imports about 40% of oil from the Middle East for its own consumption.

On the other hand, quick recovery to more stable price development supports opinion that there are trends showing increasingly huge impact on oil markets. Sustainability policies of all major world economies resulting in e-mobility, renewables and energy savings is one of current trends. Another trend is increasing diversification within global fossil fuel markets, which were launched by massive US shale gas exploration a decade ago.

Syam KP
Chief Analyst
Gulf Brokers