The conflict between Israel and Hamas has heightened worries regarding possible disturbances in the international oil market. Iran might respond by imposing oil embargoes or executing strikes on vital oil infrastructure, which could have a profound effect on global oil availability and market prices. To date, China’s influence has obstructed a comprehensive oil embargo, as it seeks to uphold its economic recovery and maintain stable ties with Western nations.
An official from the European Union concerning energy security indicated that China’s economic challenges would worsen if Brent crude oil reached $90-95 per barrel or more for a period surpassing three months. Iran has various strategies available to disrupt the worldwide oil market. Historical incidents have shown that attacks on essential oil facilities in Saudi Arabia orchestrated by the Tehran-aligned Houthis in Yemen have been effective.
On September 14, 2019, the Houthis targeted Saudi Arabia’s Abqaiq oil processing facility and Khurais oil field with missiles, leading to a halving of the Kingdom’s oil production and triggering a significant increase in oil prices. China has been instrumental in alleviating the threat posed by such assaults, ensuring a seamless pathway for its ‘Belt and Road Initiative’ throughout the Middle East. This effort has led to a thawing of relations between Saudi Arabia and Iran, marked by the revival of diplomatic ties.
Though the Houthis might heighten their attacks in the Red Sea, enhanced U.S. and allied security measures in the area have lessened some of these dangers.
Impact of geopolitical tensions on oil markets
A more severe action could involve blocking the Strait of Hormuz, the sole maritime route from the Persian Gulf to the open sea, through which about one-third of the world’s crude oil flows.
Only Saudi Arabia and the United Arab Emirates have pipelines that can circumvent the Strait. Such a blockade would likely have a profound effect on global oil prices, creating significant concerns for the global economy. The similarities between the present situation in the Middle East and the events preceding the 1973 Oil Embargo are particularly notable.
In that historical context, Egyptian and Syrian military forces executed surprise assaults on Israel, resulting in an overarching regional conflict with the involvement of numerous Islamic nations. This conflict culminated in an oil embargo imposed by significant OPEC nations against the U.S. and its allies, provoked a drastic surge in oil prices, and precipitated a global economic downturn. In the early stages of the current Israel-Hamas Conflict, Iran advocated for a similar embargo from Islamic OPEC members in support of Israel’s allies.
However, this demand has been largely ignored, chiefly because of China’s influence. The risk of Iran undertaking operations directly aimed at the global oil market presents a looming threat of turmoil reminiscent of the 1973/74 Oil Crisis. As evidenced by the Russia-Ukraine War, oil remains a pivotal factor in conflicts involving major oil exporters and importers.
