Washington — The current crisis in the Middle East has the potential to disrupt global crude oil supplies and drive up prices. But a repeat of the catastrophic price increases and long lines at gas stations seen after the 1973 Arab oil embargo is not expected, experts say.
The war between Israel and Hamas “is definitely not good news” for oil markets, already affected by production cuts in Saudi Arabia and Russia, and the possibility of greater demand in China, said Fatih Birol. , executive director of the International Energy Agency, based in Paris.
Markets will remain unstable, and the conflict could cause price increases, “which is definitely bad news for inflation,” Birol told The Associated Press. Developing countries that import oil and other fuels would be the most affected by the increase in priceshe added.
International benchmark Brent crude closed at $93 a barrel on Friday, compared with $85 a barrel on Oct. 6, a day before Hamas attacked Israel and killed hundreds of civilians. Immediately afterward, Israel began bombing Gaza, destroying entire neighborhoods and killing hundreds of Palestinian civilians in the days that followed.
Fluctuations since the Hamas attack caused prices to even reach $96.
The price of oil depends on how much is being used and how much is available. The latter is under threat due to the war between Israel and Hamas, even though the Gaza Strip is not a major oil production area.
One concern is that the fighting could lead to complications with Iran, home to some of the world’s largest oil reserves. Its crude production has been limited by international sanctions, but its oil still flows to China and other countries.
“For there to be a sustained change (in prices), we would really need to see a disruption in supply,” said Andrew Lipow, president of Lipow Oil Associates, a Houston-based consultancy.
Any damage to Iran’s oil infrastructure as a result of a military attack by Israel could cause global prices to rise. Even without that, a shutdown of the Strait of Hormuz — which lies south of Iran — could also shake the oil market, since much of the world’s supplies pass through there.
Until something like that happens, “the oil market is going to be like everyone else, monitoring events in the Middle East,” Lipow said.
One reason gas station lines similar to those in the 1970s are unlikely is that U.S. oil production is at its highest level in history. The Energy Information Administration, an arm of the Department of Energy, reported that U.S. oil production in the first week of October reached 13.2 million barrels a day, 100,000 barrels more than the previous record set in 2020. Weekly domestic oil production has doubled from the first week of October 2012 to the present.
“The energy crisis of 1973 taught us many things, but in my view the most crucial is that American strength in the energy sector is a tremendous source of security, prosperity and freedom around the world,” said Mike Sommers, president and CEO of the American Petroleum Institute, the leading trade group for the U.S. oil industry.
In a speech Wednesday to mark the 50th anniversary of the 1973 oil embargo, Sommers said current U.S. production contrasts sharply with “the weakened position of the United States during the Arab oil embargo.” He urged the country’s politicians to take into account what he said are the lessons of 1973.
“We cannot squander our strategic advantage and retreat from leadership on energy issues,” said Sommers, who has repeatedly criticized President Joe Biden’s policies, which include restrictions on new oil concessions as part of the president’s efforts to to slow the pace of climate change.
“In an unstable world, with war in Europe, war in the Middle East, and energy demand exceeding supply, energy security is at risk,” Sommers said in his speech at the Hudson Institute, a research center in Washington.
“American oil and gas are needed now more than ever,” he said. “Let us take seriously the lessons we learned from 1973 and avoid sowing the seeds of the next energy crisis.”
For now, the current crisis has not been a repeat of that of 1973. Arab countries are not attacking Israel in unison, and OPEC+ nations have not taken steps to restrict supplies or boost prices beyond a few additional dollars.
There are several unpredictable points in the energy market. One of them is the supply of Iranian oil. Anxious to avoid rising gasoline prices and inflation, the United States has quietly tolerated some exports of Iranian crude to destinations such as China, rather than strictly enforcing sanctions against Tehran’s nuclear program.
If Iran, which has warned Israel not to launch a ground offensive, escalates the conflict in Gaza — including a possible attack by Hezbollah militants in Lebanon — that could change Washington’s position. “If the United States were then to apply oil sanctions against Iran more strictly again, the oil market would be noticeably tight,” Commerzbank commodities analysts said.
The crude oil market was shaken on Wednesday after Iran’s foreign minister urged Muslim nations to launch an oil embargo against Israel, but prices soon eased.
Meanwhile, U.S. lawmakers from both parties have urged Biden to block Iranian oil sales in a bid to dry up one of the Islamic republic’s sources of funding.
Another unpredictable point is how Saudi Arabia would respond if Iranian oil is restricted. Oil analysts say that while the Saudis may welcome recent increases in crude oil prices, they do not want a massive price increase that would fuel inflation, trigger increases in central bank interest rates, and a possible recession in countries that consume oil, which in the long run would limit or even paralyze the demand for crude oil.
A third unknown element is whether more oil will reach the market from Venezuela. The United States agreed Wednesday to temporarily suspend some sanctions on the oil, gas and gold sectors in the South American country after the Venezuelan government and a faction of its opposition formally agreed to work together to achieve electoral reforms.
Venezuelan production could increase in 2024. However, in the next six months it could increase by about 200,000 barrels per day, which is relatively a very small amount, according to Sofia Guidi Di Sante, senior oil market analyst at Rystad Energy.
Sen. John Barrasso, the top Republican on the Senate Energy and Natural Resources Committee, criticized the U.S. action, calling it a “stunt” that panders to a brutal regime in Venezuela.
“Joe Biden’s energy policies put America last,” Barrasso said, pointing to the president’s decisions to suspend the controversial Keystone XL pipeline and sell off portions of the nation’s Strategic Petroleum Reserve, taking it to its lowest level. since the 1980s. The Energy Department said Thursday that it will solicit bids to begin filling the reserve in December, with monthly requests expected through May 2024.
“He eased sanctions against Iran, which finances terrorism throughout the Middle East. Now that Israel is under attack, Biden is desperate for anything that will allow him to cover up the consequences of his reckless policies,” Barrasso said. “The United States should never beg socialist dictators or terrorists for oil.”
The Treasury Department says it has taken action against nearly 1,000 individuals and entities linked to terrorism and terrorist financing by the Iranian regime and its allies, including Hamas, Hezbollah and other groups in the region.
“We will continue to act as required to counter Iran’s destabilizing activity in the region and around the world,” the Treasury Department said in a statement.