Oil markets shook, but did not give in. While all eyes were on the Middle East on the night of April 14, during Iran’s attack on Israel, analysts feared that black gold prices would soar upon recovery. markets Monday April 15. This was not the case and the barrel of Brent from the North Sea – the benchmark in Europe – even fell back below the 90 dollar mark.
In recent weeks, oil prices have experienced a sharp rebound due to geopolitical tensions and various factors, with some investors even fearing that the $100 mark will be crossed again for the first time since the start of the war in Ukraine. Francis Perrin, research director and professor at the Institute of International and Strategic Relations, specialist in energy issues, analyzes the repercussions of the Israeli-Iranian crisis, the OPEC + strategy and the hypothesis of a blockage of the Strait from Hormuz via Tehran.
What could be the consequences of Iran’s attack on oil prices?
The question is precisely whether what happened this weekend will lead to an escalation or whether, as Iranian officials say, the case is “closed”. These two completely opposite geopolitical scenarios will have very different oil consequences. The offensive took place this weekend when the markets were closed.
For now, it’s calm. Oil prices did not make a jump from their level on Friday evening and even fell slightly. If it had taken place during the week, they would have immediately increased. The markets are currently waiting. If an Israeli response were to materialize, it would have a bullish impact. It is still unclear whether we have entered into a cycle of retaliatory attacks, in a fundamental region which concentrates approximately half of the world’s proven oil reserves.
Can we say that until now, the impact of tensions in the Middle East, whether the Israeli-Palestinian conflict or the Houthi attacks, had been limited?
There was an upward effect, but limited. This was a factor which, in the last weeks before this weekend, supported oil prices at a rather high level, with Brent around $90 per barrel. After the Israeli attack on the Iranian consulate in Damascus on April 1, the markets were awaiting a possible response announced by American intelligence. Momentum remains bullish, but not spectacularly so. The oil markets know well, like all those who follow global geopolitics, that the negotiations between Israel and the United States will be decisive. The question for Israeli leaders – who spontaneously would like to strike – is whether they will respond or not. How big would a possible response be? Since no one knows anything, the oil markets are waiting, just like the whole world.
Could a possible outbreak cause inflation to restart?
The price of oil is very important in the global economic system. There are direct impacts, with fuel and plastic, and indirect effects, with freight transport largely dominated by petroleum fuels. If we go from 90 to 91 dollars per barrel for Brent, that is not what will revive inflation. On the other hand, a surge in the price of oil would be a major inflationary factor.
Why have black gold prices increased in recent weeks?
At the start of the war in Ukraine, two years ago, the price of oil had approached $140 on March 7. In recent weeks, we have not seen huge jumps. In addition to geopolitical factors, with the Middle East and Ukraine, where drone attacks against refineries in Russia have taken place, the state of the oil market partly explains this recent increase.
For months, OPEC +, made up of 22 oil-producing countries, has been implementing production restrictions. This started in the fall of 2022. At their most recent ministerial meeting, which dates back to the end of November 2023, they decided to tighten the tap a little more for the first quarter of 2024. At the beginning of March, they extended these reductions in the second trimester. Some believe they could announce a further extension of restrictions in June, which is currently fueling anticipations. In 2023, the world has never consumed so much oil. We already know that this record will be broken this year. The situation is tense, but we cannot speak of an oil shortage.
What does this say about OPEC+ strategy?
The 22 countries have only one thing in common and that is enough to come together around a table to make decisions: they are all very dependent on oil. Logically, an oil price of $90 rather than $60 benefits their export revenues. This is not geopolitical reasoning, because they do not take sides against the West. The price of crude oil must also not be too high at the risk of leading to a drop in global oil consumption, or even a global economic recession. The leaders of OPEC + are intelligent people and see beyond the end of their noses. Current prices are considered very attractive and this does not bring down the global economy.
Given the geopolitical context, is it risky to continue production restrictions knowing that prices could rise sharply?
OPEC+ countries follow the oil market every hour and this is not an exaggeration. If they had the impression that things could get out of control, they would do their duty and follow their interests to maintain a manageable and balanced market. They do not want an oil shortage and may well have to increase production if they feel the market is spiraling out of control.
In the event of an escalation between Israel and Iran, could supplies from the region be disrupted? We think in particular of the Strait of Hormuz…
We must always be vigilant because we are talking about oil. It is the most consumed energy in the world and which no one can do without quickly and massively. She is ultra-strategic. The question of the Strait of Hormuz is crucial: it is the main artery of world oil trade. Objectively, Iran has no interest in blocking it for several reasons. Firstly because if the country made this decision, there would be war the day after tomorrow, it’s as simple as that. Blocking the Strait of Hormuz would be an act of war. We will not just take the matter to the United Nations Security Council, the response will be military. Iran would not win such a conflict. Its leaders are not crazy. They sometimes want to give us the impression that they are, but their reasoning is very cold.
Furthermore, if Tehran blocked the Strait of Hormuz, Iran would no longer be able to export its own oil, which is essential for its already less than brilliant economy. Finally, this would hamper oil supplies to the rest of the world and in particular to Asian countries, including China. However, Iran maintains close relations with Beijing, which imports Iranian oil. There are not many countries in the world that buy them, for fear of American sanctions. The scenario of blocking the Strait of Hormuz would only be possible if Iran considered that the regime was truly in danger. In geopolitics, we must always distinguish between rhetoric and reality. There is a very big gap between the two.
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