Oil Tensions in Gaza Stir Up Global Unease
There's a hint of an oil crisis in the wind: if the ongoing conflict between Israel and Hamas escalates, prices could reach their all-time high. As the Organization of Petroleum Exporting Countries (OPEC) gathers in Vienna, the world watches with extra interest. The backdrop has changed drastically since their last meeting in June: not only is Russia embroiled in conflict in Ukraine, but Israel has now invaded Gaza in response to Hamas's brutal attacks.
The upheaval in the Middle East could shake up the global oil market even further than Putin's invasion of Eastern Europe.
OPEC's Inner Circles Considering Next Steps
Saudi Arabia, the world's largest oil producer, is reportedly contemplating extending the temporary production cuts agreed upon in the summer until the upcoming year. Augmenting these cuts by one million barrels a day until at least spring is increasingly likely, according to reports in the Financial Times, citing individuals within the Saudi government's inner circle. These cuts had initially been slated to expire at the end of the year.
The Saudi oil giants are harnessing the power of black gold as leverage against Israel and its Western supporters, piling pressure on Arab OPEC countries to intervene in the humanitarian disaster in Gaza. Kuwait, Iraq, and the United Arab Emirates, who are just as constrained militarily as the Saudis, are left with limited leverage: the global oil market.
As bombs continue to fall on Gaza, the likelihood that OPEC will soon deploy oil as a diplomatic weapon against the Netanyahu government and its allies swells. The specter of 1973 looms, and fears of an impending oil crisis return.
The Grip of Gaza: A Crucial Lever in Contested Territory
The heat is on Saudi Arabia to keep oil prices high by artificially curtailing production, a strategy they've employed in the past. However, there's growing pressure within Arab OPEC countries to address the unfolding crisis in the Gaza Strip. Several individuals close to the Gulf states argue that the populace is demanding a response, escalating tensions at a critical juncture.
Saudi Arabia is currently producing around 9 million barrels a day, which amounts to three-quarters of their maximum daily capacity of 12 million barrels. In order to finance their ambitious modernization program, which includes developing airports, railways, and entire cities for a post-oil era, the Saudi Arabian royal family needs oil prices to hover around or even surpass a hundred dollars per barrel.
The Israel-Gaza conflict could serve as a justification for Saudi Arabia to maintain artificially high oil prices, providing additional revenue to support their development projects. The conflict also offers the powerful Saudi family the opportunity to demonstrate strength on the global stage while enhancing their regional standing.
Growing Threats on the Oil Market
The global oil market is complex and intricate, with multiple forces vying for influence. Russia's invasion of Ukraine and the subsequent uproar over energy security has only added to the tension. The outcome of the OPEC+ meeting in Vienna could have far-reaching consequences.
While Saudi Arabia has the dominant position in the global oil market, it's not the only power player. The specter of Iran has reemerged, escalated by Israeli attacks on Iranian targets in Syria. If the conflict in the Middle East turns even more dangerous, the oil market could face additional stress from potential Iranian retaliation.
In light of the precarious situation, some experts argue that OPEC should agree to further production cuts at their upcoming meeting. However, there's a balance to be struck: artificially high oil prices could squeeze the global economy, threatening fragile growth and recovery.
The Daunting Prospect of a Double Energy Shock
According to the World Bank, the oil price could climb as high as $150 or more per barrel if the Israel-Gaza conflict deepens. This would be a "double energy shock" for the global economy, as both the war in Ukraine and the wider Middle Eastern conflict threaten energy security. Saudi Arabian officials, however, dismiss such concerns, maintaining a cautious approach for now.
As tensions between Israel and its adversaries continue to rise, oil prices and geopolitical stresses will remain volatile. The Middle East is a critical region for global energy security, and the oil market's ripples will be felt far beyond the region itself.
