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The conflict in the Middle East could affect energy prices on a global level and create a new economic crisis. The Middle East region plays a crucial role in global energy markets, accounting for 31% of global oil production and 18% of global gas production, while also hosting 48% of proved oil reserves and 40% of proved gas reserves in the world. The potential ramifications of the ongoing operations of the Israel Defense Forces in Gaza can spread the tensions to other countries in the region, a dynamic that would involve oil- and gas-producing nations such as Iran. For the moment, oil prices rose on the 18th of October, touching $93 a barrel, after Tehran called for an oil embargo on Israel after the deadly blast at the Al-Ahli hospital in Gaza City. As we write, the Organization of the Petroleum Exporting Countries (OPEC) has declared that it is not planning to take any immediate action on the matter. Still, Jordan has decided not to host a summit with the President of the United States, Joe Biden, as well as the Egyptian and Palestinian leaders.
General fears of an extended conflict drive the speculation of analysts and energy companies. The shared hope, not only for these categories, is that the ongoing conflict will end soon or at least remain localized without affecting major oil producers or transit routes. In this way, prices may see just a limited immediate change without the direct intervention of OPEC member countries in cutting production levels. As some have already noted, OPEC’s response to the Israel-Hamas conflict seems to differ from how it responded to Russia’s aggression against Ukraine. While OPEC prefers non-political oil strategies alongside a collaboration with Russia, the ongoing conflict in the Middle East isn’t seeing the involvement of major oil nations or key routes, a different kind of situation compared to the one in Ukraine. The potential involvement of Iran could change the whole picture, as Tehran is a well-known sponsor of both Hamas and Hezbollah in southern Lebanon.
Written by: Francesco Marino