Humans and Health

The Geopolitical Cost of Oil

Tensions in the Middle East are leading to unpredictability in the oil market.

The Saudi Arabian crown prince Mohammed bin Salman, has called for action against Iran to prevent damage to the world’s economy. The crown prince has warned that oil prices could “skyrocket” to an “unimaginably high number” due to tensions with Iran.

The fears over the rising price of oil comes after two recent attacks on Saudi Arabian facilities which knocked out about 5% of global oil supply, or the equivalent of 5.7 million barrels of oil. An oil field and a processing facility was attacked by eighteen drones and seven cruise missiles. The leaders of France, Germany and the United Kingdom have blamed Iran for the attacks in a joint statement, which Iran has rejected. However, Yemen’s Iran aligned Houthi rebels have claimed responsibility for the attack, undertaken on the 14 September. In response to these attacks the US is sending more troops to Saudi Arabia.

“The leaders of France, Germany and the United Kingdom have blamed Iran for the attacks in a joint statement”

Some of the main causes of fluctuations in oil prices are due to supply and demand of oil. In addition to this, some economists argue that price changes are sometimes due to speculation of the market. The damage to the Saudi Arabian processing facility caused a severe disruption in the production of oil, causing an energy price surge which drove up shares in energy companies. Furthermore, stock exchanges across Europe nosedived into the red as investors speculated over rising geopolitical tensions.

Many oil market analysts have speculated that prices could continue to rise in the coming weeks if the Middle East tensions cause disruption in the Strait of Hormuz, which is a crucial transit route for the world’s oil tankers. This rise in the cost of Saudi Arabian oil may be seen as a blessing for American shale producers, but would stem supplies to Asian economies. Despite Trump’s statement that the US was “locked and loaded” to retaliate and could allow the release of US oil reserves to help balance the markets, many experts have cast doubts on America’s ability to fill the gap left by Saudi oil production plants

“many experts have cast doubts on America’s ability to fill the gap left by Saudi oil production plants”

Oil prices have risen by nearly 15% on Monday, with the Brent benchmark seeing its biggest jump in about 30 years. Fortunately, despite Brent crude initially surged 20% at the start of trading, but eased back to end at $69 a barrel. Saudi Arabia owns 18 percent of the world’s proven petroleum reserves and is the largest exporter of petroleum. Petroleum is approximately 50% of Saudi Arabia’s gross domestic product and 70% of export earnings. Saudi Arabia is one of the largest producers of oil alongside the United States of America and Russia.

Gwen Ward

References

https://www.ft.com/content/d7b2ca9a-e31e-11e9-9743-db5a370481bc

https://www.bbc.co.uk/news/world-middle-east-50011218

https://www.theguardian.com/business/live/2019/sep/16/oil-price-saudi-arabia-iran-drone-markets-ftse-pound-brexit-business-live

https://www.economicsonline.co.uk/Competitive_markets/The_market_for_oil.html

https://www.bbc.co.uk/news/world-middle-east-50011218

https://www.bbc.co.uk/news/world-us-canada-50021138

Featured image courtesy of Marteen Heerlien via Flickr. No changes were made to this image. Image use license here.

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