Oil prices are rising, but the war is not to blame

Oil prices are rising, but the war is not to blame
Oil prices are rising, but the war is not to blame

Its prices are moving upwards oilbut the cause of the increase is not linked to ongoing Israel-Hamas war. It may be a cause for concern, but it remains confined to the Gaza Strip. Without, for now, expanding into the Middle East region, since Iran is restraining Hezbollah from opening a second front against Israel.

Iran is moving its pawns, with threats and politics, playing for a seat at the negotiating table that will open after the war to decide who will rule Gaza. Despite US sanctions, Iran has been reaping increased revenues from oil exports for two years: $54 billion in 2022, or 46% more than in 2021, and already $33.9 billion in the first nine months of 2023. And of course, he does not intend to “test” Israel’s harsh retaliation if Hezbollah enters a regular war. Something that was excluded by the leader of the “Party of God”, Haslan Nasrallah.

In Saudi Arabia and Russia the responsibility

The new jump in prices is due to Saudi Arabia and Russia: Riyadh announced yesterday that it will continue to cut production by one million barrels per day in December. The goal is to keep production at around 9 million barrels, according to an Energy Ministry source. According to Saudi Arabia’s official explanation, “this cut reinforces the precautionary efforts made by OPEC+ countries to support the stability and balance of oil markets.”

Russia also reiterated that it will continue to cut its exports by 300,000 barrels per day until the end of December. As Handelsblatt writes, “Revenues from Russia’s raw materials are increasing. The effect of Western sanctions on oil is controversial because the Kremlin manages to find new buyers.

The German newspaper even notes that while “Western sanctions against Russia were intended to paralyze the Kremlin’s war machine, but after a year and a half of war in Ukraine it is clear that the Russians have not run out of foreign currency, grenades or tanks”. Handelsblatt explains that “an important reason for this is that Russia continues to bring its most important export to the market: oil.” Russian oil exports have increased recently and more than 50% go to China and India.”

In order to increase the effectiveness of the sanctions, Washington decided on new punitive measures last week, but the E.U. is also discussing a new sanctions package.

The weakness of great powers

ING analysts said in a note that the oil market will be in surplus in the first quarter of next year, “which could be enough to convince the Saudis and Russians to continue the cuts.”

The markets’ spotlight is also on macro data from major powers: How long Chinese weakness can last, how long the contraction in the Eurozone will last and how resilient the United States will be to avoid recession.

For Washington, even if it will never be officially said, it is, for example, important that Iran can produce and export more oil to partially compensate for these risks”, emphasizes Francis Perrin. director of research at the French Institute of Geopolitics Iris. In the United States, in addition to economic growth, the popularity of the president is correlated with the level of prices at the pump, even more so with inflation that has not been seen in 40 years.

The World Bank predicted that the price of black gold will hover around $90 until December and then average $81 in 2024. On the other hand, the bank’s Outlook estimated a 4.1% drop in the prices of of raw materials for the following year, by 5% for base metals.

In unknown waters

The terrorist attack by Hamas and the relentless bombing of Gaza by Israel have multiplied the uncertainty: we are, according to the definition of the World Bank, “in uncharted waters”. Geographically, this is the most sensitive area for the balance of the global economy. “We risk an explosion in the prices of raw materials, without even the consolation of a strong economy,” writes La Repubblica. “Many economists estimate that there is a risk of fueling inflation and entrenching stagnation: that is, of having global stagflation,” the Italian newspaper said.

How real is this risk? None of the protagonists of the war in the Middle East – neither Israel nor Hamas – is in a position to predict the time horizon, much less control the conflict. However, in purely economic terms oil is no longer the cornerstone of the economy as it was 50 years ago. To produce one euro of GDP, 60% less oil is needed today. Thanks to renewable energy sources and greater efficiency. But oil and gas still provide 55-60% of the world’s energy, and they’re not going away anytime soon.

The article is in Greek

Tags: Oil prices rising war blame


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