Impact of the Tensions in Middle East on Global Oil Market
Independence. A word known to possess extreme power and, consequently, immense responsibility. But the events leading up to it seldom harbor tranquility.
The most recent movement of independence has been led by the Kurdish people, as they endeavor to establish their own domain devoid of any intervention from Iraq. This, not so surprisingly, was met with serious opposition from Baghdad, which threatened to implement military measures to confront the issue.
Estimations have revealed that the Kurdish region is known to supply 750,000 barrels of oil a day. Unfortunately, 400,000 of those barrels are from regions which are expected to succumb to the ongoing conflict.
The conflict between Baghdad and the Kurds serve as a negative supply shock in the oil market, consequently leading to increase in oil prices. West Texas Intermediate Crude embraced a price of $51.87 per barrel, a 0.8% increase from the previous price ( FactSet data.) Analysts at Commerzbank described the situation quite succinctly “ The oil market is firmly in the grip of geopolitical risks at present,”.
It is no major surprise that an increase in crude oil prices will generally lead to higher prices in gasoline. According to Energy Information Administration, a gallon of regular gasoline in the United States is currently hovering around $2.50, just shying away from a 10 percent increase from last year.
Bersetin Research analyst Oswald Clint released more unfavorable news, estimating that oil barrel prices will soar into the 70s(dollars) or perhaps even higher.
On the flip side however, Mr. Clint is reluctant to claim that the proliferation in fuel prices will impede the growth of major economies, such as the US and Germany. “In the range I am talking about, I don’t think so,” he stated.
Another speculation hints at the possibility of an increase in supply from American oil producers. A domestic increase in the production of oil would counteract the negative supply shock caused by the tension between Kurds and Baghdad, hence preventing any major changes in the price of gasolines.
The magnitude of the effects on the global oil market as a result of this crisis will be further revealed as time progresses.