Middle East tensions fuel chances of oil price surge

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Following a drone attack on an American air base in Jordan, the conflict in the Middle East could worsen. US President Joe Biden said his country would “hold all those responsible to account at a time and in a way we choose”.

ANNOUNCEMENT

A weekend drone attack on the US Tower 22 base on the Jordan-Syria border killed three US soldiers and wounded several others. The White House attributed the attack to “radical militant groups supported by Iran” but has not yet said which group it believes was responsible.

After the attack, crude oil prices rose 0.27% to $78.2 (72.2 euros) on Monday morning, a weekly increase of 4.73%. Brent crude oil prices rose 0.05% to $82.9 on Monday, posting a weekly gain of 3.70%.

President Biden announced in South Carolina on Sunday that his country “will hold all those responsible accountable. We will respond at a time and in a way that we choose.”

Attacks on American bases have increased since the war between Israel and Hamas

The attacks come at a time when the Middle East is already on high alert due to the ongoing war between Israel and Hamas Red Sea conflict. Yemen’s Iran-backed Houthi rebels have targeted commercial ships from more than 40 countries traveling through the Red Sea and the Suez Canal, saying the attacks are in response to Israel’s actions in Gaza.

Although American bases in both Syria and Iraq have seen an increase in attacks since the war between Israel and Hamas began last October, this is the first time American personnel have been killed.

Iran has denied any involvement in the drone attack. Iranian Foreign Ministry spokesman Nasser Kanaani, quoted by the BBC, told Iran’s official IRNA news agency: “These statements are made with specific political objectives to overturn the reality of the region.”

However, as the US seems ready to retaliate with its own attacks, the geopolitical situation in the Middle East could deteriorate further: around 10 countries have already been implicated in the situation in recent months. If the United States retaliates, that action is likely to have a larger impact on oil and energy prices.

What impact could this escalation of conflict have on oil prices?

ING estimates that around 12% of global seaborne oil travels through the Red Sea, along with considerable quantities of refined products. According to the American Journal of Transportation, approximately 15.5 million tons of liquefied natural gas (LNG) also passed along this route in 2023.

Several shipping companies such as Maersk and Hapag-Lloyd have already suspended transits through the disrupted region, and further actions could potentially lead to the disruption of oil and LNG supplies for several parts of the world in the coming months. Energy prices are likely to rise.

It’s not just oil and energy prices that may be affected. Several British and European retail chains such as Tesco, Primark, IKEA and Next have warned that the disruptions could lead to delays in the availability of some products and increased costs for others.

Rising costs of both energy and other products could also trigger a rise in inflation in several countries, leading central banks to delay an interest rate cut.

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