October 7 was a sad day that triggered the current crisis in the Middle East, and from an economic point of view, an interesting thing was observed from the first minute. Every day, analysts and many others announced that the gigantic oil price increase was coming, because there is a war crisis in the region where a significant proportion of the world’s oil production can be found in a fairly concentrated manner.
The oil countries reconciled with Israel a long time ago
In other cases, the suggestion could have been realistic, but the person who announced the departure of the price did not take into account some factors, which were already visible a week or two later. While between the founding of the Israeli state and 1973, Israel was at war with the surrounding Arab world, where the large oil producers were also allies on the Arab side, since then Israel and the Arab states have reconciled, or at least avoid conflict.
There is no conflict even with the neighbors, Egypt or Jordan, and there is a tacit peace with Syria, which includes the transfer of a missile from Israel, strictly against the terrorist organizations maintained by Iran. Oil producers such as Saudi Arabia, Kuwait, Iraq, Bahrain or the Emirates do not want to hear about any conflict, they want peace and the prosperity provided by oil.
Iran and its tentacles
As a result, the conflict remained limited: it only covered the terrorist organizations supported by Iran: Hezbollah, Hamas and the Houthis. The initial rise in oil prices quickly stalled, and even turned into a fall: this was the period when domestic gasoline prices dropped significantly.
From January, the price rose somewhat again, but then it got another push when the possibility of a direct Israeli-Iranian conflict appeared. At that time, many opinions about the skyrocketing oil price were again published, while the price of Brent did not even exceed 90 dollars, compared to the peak of 95 dollars in September before the conflict.
An intractable conflict
The market incorporated the conflict into the price, many people could buy in advance, or many made speculative purchases, waiting for the big increase. At the same time, it seemed again that the two countries could become tense, but none of the Arab states wants to participate in this, so the conflict cannot be extended to them. In addition, impoverished Iran will completely collapse without oil revenues, so it is important for it to maintain the possibility of oil exports, and the routes should not be in danger.
Brent oil price, 2 years, dollars
Image: stooq.com
Finally, the events of the direct confrontation came: Iranian rockets and drones rained down on Israel, without significant damage, and then the Israeli response, which at first seemed to be only a few drones, but then it turned out that it really succeeded in eliminating a critical element of Iranian air defense. Again, the price of oil could only rise for a few minutes, and then immediately fell. Since then, WTI has fallen to 82 dollars, Brent to 86-87.
Abundant supply
It is not yet known how much the tension will remain and how much it will flatten out, but oil production is still massive, and oil reserves are increasing worldwide. Of course, we cannot expect the price to suddenly collapse, but it is already apparent that the situation in the Middle East cannot significantly push it higher.
If the conflict starts to escalate, a slow decline cannot be ruled out, and in addition, the US presidential election is coming up, and the current, re-electable president does not mind if the American producers are operating at full speed, pouring what can only fit on the pipe into the market.
