“We wouldn’t see a 2% price spike; we’d see a 20% spike.” Rising oil prices and the forces behind it

MICHAEL THOMAS

The battle that has been activated again between Israel and Palestine this time can and will have far-reaching effects around the globe from a business and financial point of view, and the price of oil is and will be at the center of it all.

Let us examine how all this is possible. Even though Israel and Palestine have been at each other’s throats forever, there has never been so much at stake as is the case now.

Just a few days ago global oil prices went up by 4% over fears that this conflict could escalate into a much bigger monster, mostly by production cuts by Saudi Arabia and Russia.

Amidst all this, the public has been made to believe that things are not so bad, and here is why. “The impact on supply and demand is pretty much zero so far. The attack itself has no effect on the oil market directly,” said Homayoun Falakshahi, a senior oil analyst at data provider Kpler.

“However, wary investors are pricing in some geopolitical risk,” said Falakshahi

This tells us that we civilians are being gouged just on a perceived forecast of more trouble.

As things stand, Israel and Palestine are not major oil-producing countries, however, their geopolitical position could become a problem if this conflict continues, here is how.

Israel has two oil refineries with a combined capacity of almost 300,000 barrels per day. According to the U.S. Energy Information Administration (EIA), Palestinian territories produce no oil.

Israel has accused Iran of backing and arming Palestine in the past. Iran stands in solidarity with Palestine but has said that it has no hand in these recent attacks, and at this time the United States does not have “direct information” linking Iran to what it calls an unprecedented assault, but if this changes, all hell could break loose, and so can your oil prices, so be prepared.

If a clear link to Iran emerges, America is more than likely to intervene, and this has all the markings of oil sanctions written all over it. Shortages and soaring prices for the poor citizens of the world could be on the way soon.

Here is a look at the oil scheme from a United States lens. To help secure the release of five American prisoners in Iran, Washington relaxed its enforcement of sanctions on Iran, sanctions that were restored on Iran’s oil in 2018 after former President Donald Trump tore up a nuclear deal negotiated under his predecessor Barack Obama.

Since then, according to Brussels-based think tank Bruegel, Iran’s oil production has surged by 700,000 barrels per day this year. Could this be why Israel and the United States are watching Iran so keenly?

Remember I said earlier in this article that Palestine and Israel are not major oil giants, but their position geographically could pose a problem.

The Strait of Hormuz is a narrow waterway off Iran’s southern border through which 37% of global seaborne oil exports travel each day.

Now if groups like Hezbollah which is a Lebanese paramilitary group also backed by Tehran join this fight, this could draw in bigger regional powers such as Iran and Saudi Arabia.

According to United States media, Lebanon’s Hezbollah militant group confirmed it launched attacks on three sites in the Shebaa Farms, a strip of land that sits at the intersection of the Lebanese Syrian border and the Golan Heights, which is occupied by Israel.

Now an intervention by Iran could potentially involve disruptions to the flow of oil through the Strait of Hormuz, which can drive up oil prices. “That would be a complete game-changer for the oil market,” Falakshahi said.

“We wouldn’t see a 2% price spike; we’d see a 20% spike.”

Let that sink in people!!