Experts predict that the disastrous price increases and huge queues at the gas pump will not be repeated. Fifty years after the Arab oil embargo of 1973, the present Middle East crisis has the potential to disrupt global oil supplies and drive up prices.
The Israel-Hamas conflict is “definitely not good news” for oil markets already strained by Saudi and Russian production cuts and predicted increased Chinese demand, according to the chairman of the International Energy Agency. Markets will remain volatile, and the battle might force up oil prices, “which is definitely bad news for inflation,” according to Fatih Birol, executive director of the Paris-based IEA. Higher costs will have the greatest impact on developing countries that import oil and other fuels, he said.
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Brent crude surged at $91 per barrel on Thursday, up from $85 the day before Hamas launched an onslaught on Israel, killing hundreds of civilians. In the days that followed, Israel conducted bombings on Gaza, demolishing entire communities and murdering hundreds of Palestinian residents. Oil prices have risen as high as $96 since the attack. The price of oil depends on how much of it is getting used and how much is available. The latter is under threat because of the Hamas-Israel war, even though the Gaza Strip is not home to major crude production.
One worry is that the fighting could lead to complications with Iran, home of some of the world’s largest oil reserves. Its crude production has been constrained by international sanctions, but oil is still flowing to China and other countries. “In order to get a sustained move (in prices), we really would need to see a supply disruption,” said Andrew Lipow, president at Lipow Oil Associates, a Houston-based consultant.
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Any damage to Iran’s gas pump infrastructure caused by an Israeli military strike might cause world prices to skyrocket. Even without that, a closure of the Strait of Hormuz, which runs south of Iran, could wreak havoc in the oil market because so much of the world’s supply passes through it. Until that happens, “the oil market is going to be like everyone else, monitoring the events in the Middle East,” Lipow predicted.
One reason that 1970s-era gas lines are improbable is that US oil production is at an all-time high. The US Energy Information Administration, a branch of the Energy Department, stated that American oil production surpassed 13.2 million barrels per day in the first week of October, breaking the previous high established in 2020 by 100,000 barrels. From the first week of October 2012 to the present, weekly domestic oil output has more than doubled.
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“The 1973 energy crisis taught us many things, but the most important is that American energy strength is a tremendous source of security, prosperity, and freedom around the world,” said Mike Sommers, president and CEO of the American Petroleum Institute, the top lobbying group for the US oil industry.
In a speech Wednesday marking the 50th anniversary of the 1973 oil embargo, Sommers said current U.S. production contrasts sharply with “America’s weakened position during the Arab oil embargo.” He urged U.S. policymakers to heed what he called the lessons of 1973.
“We cannot squander our strategic advantage and retreat on energy leadership,” said Sommers, who has repeatedly criticized President Joe Biden’s policies restricting restricting new oil leases as part of Biden’s efforts to slow global climate change.
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“With an unstable world, war in Europe, war in the Middle East, and energy demand outstripping supply, energy security is on the line,” Sommers said in a speech at the Hudson Institute, a Washington think tank. “American oil and gas are more needed than ever,” Sommers added. “Let us remember the lessons of 1973 and avoid sowing the seeds of the next energy crisis.”
For the time being, the problem is not a repetition of 1973. Arab countries are not criticizing Israel in unison, and OPEC+ countries have made no moves to limit supplies or raise prices beyond a few dollars. The energy market contains multiple wild cards. The supply of Iranian oil is one example. Eager to avoid a spike in gasoline prices and inflation, the U.S. has quietly tolerated some exports of Iranian oil to destinations such as China instead of going all in on sanctions aimed at Iran’s nuclear program.
If Iran, which has advised Israel not to launch a ground offensive, deepens the Gaza confrontation, including a possible invasion by Hezbollah fighters in Lebanon backed by Iran, the US position may shift. “If the US were to reimpose stricter oil sanctions against Iran, the oil market would tighten noticeably,” warn commodities analysts at Commerzbank.
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Lawmakers from both parties have asked Biden to halt Iranian oil sales in order to deprive the government of one of its main sources of financing. Another unknown is how Saudi Arabia will react if Iranian oil is curtailed. While the Saudis may have welcomed recent oil price increases, they do not desire a large price increase that would drive inflation, higher central bank interest rates, and a likely recession in oil-consuming countries, ultimately limiting or even eliminating demand for oil.
A third unknown is if more Venezuelan oil will enter the market. After Venezuela’s administration and a segment of the opposition publicly agreed to work together on electoral changes, the United States agreed Wednesday to temporarily waive some sanctions on the country’s oil, gas, and gold industries.Venezuelan output could rise in 2024. However, production might increase by 200,000 barrels per day during the next six months, according to Sofia Guidi Di Sante, senior oil market analyst at Rystad Energy.
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Wyoming Senator John Barrasso, the top Republican on the Senate Energy and Natural Resources Committee, condemned the US action as a “gimmick” designed to please Venezuela’s cruel leadership. “Joe Biden’s energy policies have put America last,” Barrasso said, referring to the Democratic president’s choices to destroy the contentious Keystone XL oil pipeline and sell off substantial amounts of the nation’s Strategic Petroleum Reserve, which has dropped to its lowest level since the 1980s. The Energy Department announced Thursday that it will seek bids to begin replenishing the oil stockpile in December, with monthly solicitations planned through May 2024.
“He relaxed sanctions against Iran, which funds terrorism throughout the Middle East.” Now that Israel is under siege, Biden is looking for anything that will distract from the repercussions of his foolish policy.” According to the Treasury Department, approximately 1,000 persons and businesses linked to terrorism and terrorist financing by the Iranian regime and its proxies, including Hamas, Hezbollah, and other regional groups, have been targeted. “We will continue to take action as appropriate to counter Iran’s destabilizing activity in the region and around the world,” the U.S. Treasury said in a statement.
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