The oil market had been installed in a strange oil pond for weeks. Once the brutal blow of the Russian invasion of Ukraine had been digested, all eyes were on a demand that was emitting – and continues to emit – clear signs of weakness. To general surprise, not even the powder keg of the Middle East made a dent in prices. All that changed on Tuesday, with the attack on Israel by Iran, the seventh largest producer and holder of the third largest reserves in the world, which has skyrocketed prices and sowed an uncomfortable feeling of anxiety. “The situation in the oil market is risky, and it could be even more so,” warns the director general of the International Energy Agency (IEA), Fatih Birol, in conversation with Morning Express.
The head of the energy arm of the Organization for Economic Cooperation and Development (OECD, the think tank of rich countries) glimpses, above all, two dangers on the immediate horizon. The first, that the war escalates and ends up involving other important producers in a key energy region. “It is the great unknown, what I don’t know and I think no one knows: if, in the coming days or weeks, other countries will be directly affected…” he slips into the phone. Five of the 10 largest crude oil producers in the world (Saudi Arabia, Iraq, Iran, the United Arab Emirates and Kuwait) are located in the Middle East. And three (Iran, Qatar and Saudi Arabia) are also major gas powers.
The second risk is that the conflict “ends up affecting a strait through which a significant amount of oil transits.” A clear (although indirect) reference to Hormuz, the only possible link between the Persian Gulf and Oman, controlled by Tehran and through whose waters flow one in every five barrels of crude oil moved every day in the world. With a daily flow of a thousand oil tankers, a potential closure decreed by Iran would be a major blow to prices.
“It is difficult to quantify the impact that closing Hormuz would have, but it is clear that it would create a serious bottleneck. Above all, if it is total,” warns Birol (Ankara, 66 years old). An attack by Israeli aviation on oil infrastructure in Iran seems more likely, a plausible option. “I do not want to speculate on the implications of an attack that we do not know if it will happen or not…”, eludes the head of the Paris-based agency. “But if it happens, we would see a new increase in volatility.” In silver: if Hormuz closes, prices will rise vertically. The only question is how far.
Attenuants
In less than a week, the barrel of Brent,The reference price in Europe has gone from just 70 to around 80 dollars. A substantial rebound, although also notably smaller than that recorded in the spring and summer of 2022, when Russian President Vladimir Putin unleashed the largest energy crisis in European history by invading Ukraine. Then, the price of gas quintupled in the blink of an eye and oil reached almost $130. Far, far from current levels. “At the moment, global demand is quite weak and will peak before 2030. Thanks to that, prices do not rise further,” explains Birol.
In 2024, according to their calculations, consumption will grow by just one million barrels per day, pressured downwards by weak economic growth in Europe and China, and by the growing electrification of transportation. The increase predicted by the IEA is notably lower than what was predicted by most analysis houses and the once all-powerful OPEC cartel (the Organization of Petroleum Exporting Countries), a colossus that has declined over the years. “We are in a relatively comfortable market situation, with a lot of supply and less demand,” argues Birol.
Muted rise
The radical change in the market structure is also contributing to the muteness in the recent price increase. “An increasingly substantial amount of oil comes from the United States, Canada, Brazil and Guyana: just what those countries are increasing their production is enough to cover the new demand.” Their numbers also point to an idle (surplus) capacity of around five million barrels per day in several OPEC countries, “especially in Saudi Arabia and the United Arab Emirates.” A powerful security cushion to face possible interruptions in pumping from other Gulf countries.
Even in the worst scenario, that of the closure of Hormuz – through which the bulk of Saudi, Qatari and Emirati crude oil and gas travels towards Europe – Birol sees a cataclysm comparable to that caused by the Russian invasion of Ukraine as unlikely. . The Turkish economist, about to complete a decade at the head of the IEA, denies the biggest: “I wouldn’t say so much: at that time, Russia was the world’s leading oil exporter… I wouldn’t put it on the same scale.” He also rules out $100 per barrel, at least in the short term: “Barring a major incident, I don’t think we will see those figures… Unlike the past, this new geopolitical situation comes when the market is not at all tense.” . A slack that, ditch, makes “an important difference” compared to 2022.