The Iranian attack on Israel on Saturday resulted in global turmoil, with condemnation and warnings about the escalation of events in the Middle East. This could lead to instability and insecurity in the region, as well as have a direct impact on price increases in the area and the region.
Impact of the Iranian attack on global energy prices
The Egyptian Center for Strategic Studies (ECSS) revealed in a research paper published on the tensions in the Middle East resulting from the Iranian attack, which is expected to have repercussions on global energy markets.
It explained that the term "global energy security" is not new in international politics; conflicts over global energy resources have been a significant element in the international corridors of major powers for a long time. However, this term has now become one of the most important elements of global security due to the limited nature of non-renewable energy resources and the imbalance in their distribution globally.
The ECSS pointed out that oil prices are affected by events that are not directly related to supply operations, starting from geopolitical events such as regional or geopolitical instability, especially when it comes to major oil sources such as the Middle East. Additionally, the Middle East is an area of significant importance on the international stage, and its influence extends to a variety of fields, including economics, politics, and global security. Its challenges and events play a crucial role in shaping the modern world and its future, especially concerning global energy security.
Global markets hold their breath
For several days, global crude oil prices remained hostage to escalating concerns over a potential Iranian response to the attack targeting the Iranian consulate in Damascus. This was amidst various scenarios about the extent of Tehran's response and its impact on crude oil price levels, as well as concerns related to the consequences for the movement of crude oil through maritime straits in the region, especially the Strait of Hormuz. However, the Iranian attack on Israel on Saturday, contrary to many expectations and estimates, had a limited and relatively restrained impact on global crude oil prices compared to previous expectations, according to the paper.
Impact of the Iranian attack on oil supplies in the region
The center affirmed that the attack would have an impact on the axis of oil supplies in the region amid fears that these consecutive events would lead to increased tensions in the Middle East. This is related to a major player in the crude oil markets, which may affect the production of major oil producers. At a time when there is much talk about Iranian oil entering the game, posing an important question: Will the recent escalation, albeit limited, affect global crude oil markets? And what is the significance of Iranian oil?
Iran possesses significant reserves of crude oil in the world, ranking among the top producers of oil globally. It ranks third after Venezuela and Saudi Arabia among OPEC countries in terms of confirmed oil reserves. Iran's total extractable crude oil reserves are estimated at about 157.8 billion barrels until the end of 2022, in addition to owning 21 gas refineries and 10 oil refineries, and it has the technical capabilities to build other refineries.
Regarding the impact of tensions and ongoing events on Iranian oil, Tehran struggles to cope with sanctions. Although the destinations and quantities of Iranian oil sales are unclear, Washington could disrupt oil sales and transfer revenues to Iran if the crisis reaches boiling point. If Iran closes the Strait of Hormuz, oil tankers in this region will suffer, and the Middle East region will be significantly affected.
Iran's oil production has increased by over 700,000 barrels per day since the beginning of the current year, reaching its highest levels in five years at around 3.2 million barrels per day. Tehran benefited from easing tensions with Washington, and if the US administration refrains from cutting off Iranian oil exports, this may change during the coming period, linking some to the Biden administration's desire to curb rising crude oil prices. The crisis has not yet reached boiling point because there are only bilateral threats. Saturday’s events may be a warning to crude oil markets, but this will restrict the movement of entry and exit from the Strait of Hormuz and affect oil prices.
Crude oil price movements and expected repercussions
Since the beginning of the current year 2024, global oil markets have witnessed instability. The recent developments in the Middle East, particularly the aftermath of the war on Gaza, have reflected a new trend in crude oil price movements and the global energy scene in general. Crude oil prices ended last week on an upward trend during weekly trading sessions.
This came in response to escalating fears and tensions in the Middle East. However, they recorded weekly losses due to several reasons, including negative expectations from the International Energy Agency about the growth of global demand for crude oil, in addition to concerns about the slowdown in US interest rate cuts, as well as estimates related to global crude oil demand, as well as demand in China (about 1.3 million barrels per day of crude oil).
However, Brent crude futures rose by 70 cents, reaching $90.5 per barrel, while West Texas Intermediate (WTI) crude futures rose by about 10 cents to $85.7 per barrel at the close last Friday. Brent crude fell by 0.8% on a weekly basis, compared to a drop of over 1% for US crude.
It is worth mentioning that before the targeting of the Iranian consulate in Damascus earlier this month, oil prices were trading around $85 per barrel for West Texas Intermediate crude futures for May delivery and $88.9 per barrel for Brent crude.
On April 5th, Brent crude surpassed $90 per barrel for the first time since mid-last year under the pressure of geopolitical developments in the Middle East.
At the end of the week before last, oil prices recorded weekly gains after Tehran's promise, being the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC), to respond. US crude oil futures ended the week at $86.9 per barrel, and $93.2 per barrel for Brent crude.
The Middle East region holds about 75% of the world's crude oil reserves (high quality), and the importance of the Middle East is a significant axis in the crude oil industry because 90% of the growth in oil supply will come from the region, a major source. The Middle East and North Africa region own about 57% of confirmed crude oil reserves and 41% of natural gas.
