Filenews 6 October 2024
When Israel's war against Hamas began a year ago, concern about the economic impact it could have on the global economy more broadly focused on oil prices.
The fear of a generalized war in the Middle East, involving Iran that could hurt its oil production and exports, was legitimate, given that Tehran supports Hamas, as well as Hezbollah in Lebanon and the Houthis in Yemen to act against Israel.
Because Iran did not seem willing to get directly involved in a war, oil prices moved lower as conditions of global supply were created.
That was until OPEC stepped in and further cut its own production. After the intervention of OPEC, which mainly includes Arab countries, the price of Brent crude moved for a while to higher levels, close to $ 85 a barrel, but then began to slide again. In the third quarter of 2024, Brent fell 17% and especially in September by 9%, falling below $70.
It has thus been shown that OPEC no longer has the power it had in previous decades to keep prices artificially high for a long time, and this is mainly due to the large increase in production from outside the cartel, mainly the US.
Also, the reduction of production by the OPEC countries deprives them of valuable revenues, to the extent that they cannot achieve their maximalist unofficial price target of $100 a barrel. They therefore have an incentive to increase production, something Saudi Arabia recently signalled it would do from December, pushing prices below $70.
Added to these two factors is the limited demand from China due to the slowdown in the growth rate of its economy, clearly creating conditions for excess supply of "black gold" in 2025. The backdrop was so clear to investors that bets on a further fall in oil prices reached a record high recently.
All this, however, occurred before the new dramatic escalation of the conflict in the Middle East in recent days. The transfer of the battlefield from Gaza to Lebanon and the repeated heavy strikes on Hezbollah led Iran to launch a major attack on Israel, with about 200 missiles, last Tuesday.
However, on Thursday they rose again by 4% as U.S. President Joe Biden left open the possibility of an Israeli attack on Iranian oil facilities, which is what markets feared at the start of the war.
The question of how crude prices will fare from now on will largely depend on what Israel's response to the Iranian attack will be. Will it actually hit Iran's energy facilities and to what extent? Will it inflict other major blows that will lead Tehran to respond, and is it likely to block the movement of tankers in the Strait of Hormuz at the entrance to the Persian Gulf, through which 20% of oil exports pass?
U.S. banks such as Goldman Sachs and Citi expect prices to rise by $20 a barrel to close to $100 if a significant portion of Iran's oil capacity, which stands at about 4 million barrels per day, is damaged, or 4% of world production.
Many analysts and investors believe that a major destruction of energy infrastructure, which would significantly increase prices, is not wanted by the US, especially in the current election season. Some note that other OPEC countries could fill the gap left by a decline in Iranian exports, so the impact on prices would be limited. But a war is always unpredictable.
(Capital.gr)
