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Oil at $150 a Barrel? How a Conflict Between Iran and Israel Could (or Could NOT) Explode Oil and Gas Prices

Published 02/10/2024 às 09:20
Barrel of Oil, Israel, Iran, Oil and Gas, Oil Prices
Photo: Reproduction

Oil Price Rises: Could the Possibility of a Conflict Between Iran and Israel Cause Oil and Gas Prices to Soar?

Oil prices rose about 2,5% after an attack in the Middle East. On October 1, Iran launched hundreds of missiles ballistic missiles against Israel, intensifying tensions in region and sparking increased concerns about the future of supply Oil and Gas.

With Israel poised to retaliate and Iran possibly responding more forcefully, many fear a wider war in Middle East is approaching. However, the oil market still believes that the flow of oil from the region will be maintained, even amid the conflicts.

For analyst Rick Newman, from Yahoo Finance, despite initial concerns, the 2,5% increase in oil prices reflects the view that combatants in the region prefer not to disrupt oil supplies, something that could have disastrous consequences for the global economy.

Although the conflict between Iran and Israel has the potential to escalate, everyone involved has an interest in preventing the price of oil from reaching critical levels, something that would have serious repercussions, especially for the United States.

The geopolitical impact – Barrel of oil at US$150?

Barrel of Oil, Israel, Iran, Oil and Gas, Oil Prices
Photo: tehrantimes

Iran's attack was a response to Israel's actions against the Hezbollah and Hamas groups, which are supported militarily and financially by Iran.

Israel has recently carried out operations against these groups, including the assassination of a senior Hamas official in Tehran and the killing of a Hezbollah leader in Beirut. These moves by Israel have increased tensions with Iran, which has chosen to retaliate more aggressively.

Despite the escalation, the possibility of Israel attacking Iranian oil facilities seems remote. There are strategic reasons why this should be avoided.

The main one is the pressure of United States, Israel's main ally. In a direct confrontation with Iran, Israel would need US military and diplomatic support, and attacking oil facilities could further complicate that alliance.

Furthermore, Iran is responsible for about 1,5% of the world's oil production, and any disruption to that supply would have a significant impact on prices. global.

If Iran were to be prevented from exporting oil, the consequence would be a dramatic increase in prices. Oil could easily surpass the $100 mark per barrel and, in more extreme scenarios, reach $150.

This would have a devastating effect on gasoline prices, especially in the United States, where a gallon could reach between $5 and $7, something that the Biden administration, on the eve of a presidential election, would certainly try to avoid at all costs.

The role of China and other oil and gas producers

Barrel of Oil, Israel, Iran, Oil and Gas, Oil Prices
Photo: tehrantimes

A key factor in this conflict is the role of China, which has become the largest buyer of Iranian oil, defying Western sanctions aimed at punishing Iran for its actions in the Middle East.

China buys Iranian oil at below-market prices and has an interest in ensuring that this supply continues. As a net importer of oil, China wants to keep prices low, explaining its cautious stance toward any conflict that disrupts the flow of oil in the region.

Although China does not have the same military influence as the United States in the Middle East, it exerts great economic influence over Iran, as the country depends on revenues from oil sales to China.

As such, Beijing has a direct interest in maintaining stability in oil supplies, meaning that any Iranian action that threatens that supply would be frowned upon by its main trading partner.

Other countries in the region, such as Saudi Arabia and the United Arab Emirates, are also wary of an oil and gas war.

While they may benefit from a rise in prices, they know that instability brings risks that can threaten other strategic priorities.

Saudi Arabia, for example, is interested in improving its trade and economic relations with Israel, something that would be difficult to achieve in the midst of a prolonged conflict.

Furthermore, the memory of the Iranian attack on Saudi oil facilities five years ago is still fresh in the minds of the region's leaders.

This attack was one of the largest short-term supply disruptions in history, and the fact that Iran and Saudi Arabia resolved their differences through Chinese mediation suggests that both countries would rather avoid an energy war, which would do more harm than good.

The global energy scenario

The Middle East is a region marked by unpredictable conflicts and constant tensions. However, historical experience shows that even in the midst of wars and skirmishes, oil continues to flow.

This reality is sustained by the economic interdependence of oil producing and consuming countries, which have an interest in maintaining a stable market.

If Iran were to decide to halt its exports or attempt to close the Strait of Hormuz — through which about 21 percent of the world’s oil passes — the impact on the global market would be devastating. Oil prices could quickly rise above $100 a barrel, and in a more extreme scenario, above $150.

This would not only affect the global economy, but also have political repercussions in the United States, where rising gasoline prices could hurt the electoral chances of the party in power.

While the future of the conflict between Israel and Iran is uncertain, the most likely outcome is that the parties involved will do everything possible to avoid a major energy crisis.

Global economic interests, combined with the desire for stability on the part of major powers such as China and the United States, suggest that oil will continue to flow, even if peace in the region is still far off.

The Middle East remains a volatile region, but the lesson from past wars is that when it comes to oil, pragmatism often prevails over belligerence.

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Fabio Lucas Carvalho

Journalist specializing in a wide range of topics, such as technology, politics, shipbuilding, geopolitics, renewable energy and economics. I have been working since 2015 with prominent publications in major news portals. My degree in Information Technology Management from Faculdade de Petrolina (Facape) adds a unique technical perspective to my analyses and reports. With over 10 thousand articles published in renowned media outlets, I always seek to bring detailed information and relevant insights to the reader. For story suggestions or any questions, please contact me by email at flclucas@hotmail.com.

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