Why did oil prices rise after the confrontation between Iran and Israel?
Oil achieved about 7 percent, since Israel launched an attack against Iranian targets in the early hours of Friday. We often see a sharp rise in the global oil prices, the more geopolitical tensions in the Middle East.
In this report, we address the most important reasons for the enormous association of oil with geopolitical tensions in the region, especially the current tensions between Iran and Israel.
In the early hours of last Friday morning, Israel entered a direct confrontation with Iran, by announcing the start of a large -scale military operation under the name "the rising lion operation", aimed at the Israeli army to "remove the Iranian nuclear threat."
The army spokesman said the operation will be carried out according to an organized and gradual plan, but it will be long -term, and includes pre -specific accurate targets. A statement by the Israeli army stated that these strikes were based on accurate intelligence information, and achieved great damage to the Natanz nuclear reactor, which is one of the main pillars of the Iranian nuclear program.
Hours later, Iran responded with an operation called "The sincere promise 3", targeting "dozens of goals, bases and military infrastructure" in Israel.
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But what is the impact of this on oil prices?
Iran and the oil supplier
According to the data of the Organization of Petroleum Exporting Countries (OPEC), Iran produces about 3.3 million barrels per day, while its exports of black crude and fuel reach 2 million barrels per day, which makes it one of the most important member states of the Organization of Oil Exporting Countries.
OPEC's oil production at the end of last May amounted to 26.75 million barrels per day, an increase of about 150,000 barrels per day, the previous month, according to a Reuters news agency. These figures clarify the importance of Iran for the global supply of oil.
"It is expected in the short term a sharp increase in oil prices driven by the fear factor, but the real impact is in the event of the transformation of current tensions into a wider regional clash," said Mohamed Hassan Zaidan, chief strategic analyst for financial markets at the BBC.
He added: "In this case, we will find that we are talking about an actual threat to oil supplies from the Gulf states, especially through the Strait of Hormuz, through which about 20 percent of oil supplies in the world pass."
It is natural for Iran's share of OPEC to affect the global oil supply. In the absence of this share from the markets, the supply declines, and then the prices rise.
Zidane explains that "the absence of Iranian oil would cause a noticeable vacuum in the markets that are not easy to compensate, as it produces about 3 million barrels of oil per day and exports between 1.5 to 2 million barrels per day, or more than 11 percent of OPEC's production."
The interest of the global oil markets has turned from the issue of the increase in the global supply of oil - which has been pursued with great care since OPEC increased its production rates for the third time in a row last May - to focus on the expectations of possible deficit in supplies due to the ongoing escalation between Israel and Iran.
In its meeting held on May 30, the OPEC+decided to increase its production by 41 thousand barrels per day, starting from the first of next July, which is the third consecutive increase in the rate of production of the group's countries.
OPEC+includes members of OPEC in addition to countries other than the world's leading oil exporters, led by Russia.
"Iran is considered one of the major producers in OPEC, and if it temporarily comes out of the export equation, it may not suffice the capabilities of other countries (such as Saudi Arabia and the UAE) to fill the gap without affecting the market balances and pushing inflation levels globally for more rises," Raed Hamed Al -Khader, Director of Business Development at EquiIS Group for Financial Mediation, told the BBC.
How are Arab economies affected?
Al -Khader said that "the Gulf economies, for its part, stand in front of a precise equation: on the one hand, to benefit from the high prices to enhance financial surpluses, and on the other hand, it is caution that the region will turn into a focus that threatens global energy supplies, which may be reflected in the cost of insurance, transportation, and the confidence of international investors."
The Gulf Cooperation Council countries depend on oil exports to global markets, in the forefront of which is Saudi Arabia, which occupies the first position among the oil exporters between the OPEC countries, in providing their necessary financing needs.
Despite the attempts of some Gulf states, led by Saudi Arabia and the UAE, to diversify the economy with the aim of providing various sources of income, oil revenues remain the main source of financing these countries and the nerve of public budgets for them.
"As for the Gulf states, it will achieve great gains from the rise in oil in the short term. But on the other hand, that is, a real threat to marine oil corridors across the region or oil installations for these countries, especially Saudi Arabia and the UAE, would put their economies under strong pressure and make them more cautious about their financial accounts and plans."
Last Friday, US oil futures rose to $ 73.51 a barrel for the last daily closure, which recorded $ 70.27 a barrel. American crude futures fell to their lowest level on the current trading day at $ 70.78 a barrel for the lowest levels that recorded $ 78.45 a barrel.
Brent crude contracts also rose to $ 74.74 a barrel in the same period, compared to the closure registered in the previous trading session at 70.27 dollars a barrel, according to the live chart of TradingView.com.
"I expect the Gulf states, especially Saudi Arabia, the Emirates and Kuwait, will witness positive pressure on the prices of their oil exports, which may enhance public revenues," Rania Wajdi, the chief market strategy of OW Markets, told BBC.
But she warned of the possibility that "there are some risks that mainly lie in the high shipping and insurance costs, and there are fears of an environmental impact on the water security of the Gulf states in the event of targeting Iranian nuclear facilities."
Geography controls the markets
20 million barrels of oil and its products cross the Strait of Hormuz, which links the Persian Gulf and the Gulf of Oman, daily. It is still open to the movement of commercial navigation despite the mutual missile shelling between Iran and Israel.
Al -Khidr says that the current geopolitical developments imposed what is known as "the risk bonus on crude oil prices, and with markets pricing because of the possibility of a broader regional conflict, which may threaten a large part of the naval global energy."
However, the British Maritime Security Corporation "Imbberry" recommended shipping and container companies to prepare by taking other paths other than the Strait of Hormuz in the wake of the military strikes in the region.
"Certainly, the Israeli strike of Iran opened a new door to tension in a highly sensitive area of global energy, and the markets by their nature hates ambiguity and any military escalation between Iran and Israel in the region that brings to mind the scenarios of sudden jumps to prices," Zidane said.
"We are dealing with a highly sensitive market at the present time, which is controlled by geography as much as the numbers are controlled. Any mistake in political accounts may lead to the explosion of global oil prices in the short term."
"The concerns of the potential regional war raises great concern about the Strait of Hormuz, through which about five to a third of the global oil trade passes," said Wajdi.
"If the conflict deepens, we can be facing a possible stoppage for a flow of about 1.75 million barrels per day of Iranian production within 6 months, according to Goldman Sachs estimates," stressing that a shortage of this size can strongly affect the stability of global supplies, which pushes prices towards more rise.
Iranian oil investments
Huge investments are pumped from different countries and global companies in the Iranian energy sector, with the aim of financing oil exploration and extracting activities, and other oil -related works. It is normal for any disturbance in the flow of these investments negatively affecting the levels of Iranian oil output.
"In terms of Iranian oil investments," Zidane says. "Just talking about the war drives global companies to freeze their investments in the Iranian energy sector, which is mainly suffering from financial isolation and US sanctions," Zidane says.
While the Greens see that there are severe damages that may be caused by oil infrastructure, which would make Tehran urgently need more investments in the energy sector that indicates expectations that they can be limited in the coming period due to geopolitical tensions.
"For Iran, any additional escalation may lead to the damage of its oil infrastructure, and thus the disruption of its production, which exceeds 3 million barrels per day, which will weaken its role inside OPEC and reduce its exports, which rely heavily on Asian markets. The exacerbation of tension will deepen the suffering of the economy inside Iran, or expand new oil projects."
In its statement issued regarding the strike against Iran, Israel confirmed that it focused on "nuclear targets" in addition to targeting a large number of Iranian military leaders without this included a reference to any oil facilities.
Perhaps this is what prompted Rania Wajdi to differ with the Greens on the oil investments in Iran and the potential role to play in directing global prices.
"The Iranian oil infrastructure has not been directly damaged as a result of Israeli strikes until now, and this reflects that the current concerns are not due to an actual deficiency in the offer. But it reflects the expectation of supplies, not actual changes in the availability of oil," Wajdi said.
The Israeli strikes that targeted sites inside Iranian territory raised concerns about the decline in investments in the energy sector because investments, especially the foreign ones, raised, of course, are negatively affected by wars and armed conflicts, which may be reflected in the Iranian sector in the form of a decrease in oil production rates.
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