Regional Crises and Oil's Loss of Its Role as a Strategic Commodity
At a time when the entry of the United States into the ongoing war between Iran and Israel was expected to drive further escalation, that intervention instead hastened a ceasefire agreement between the combatants, after the United States allowed Iran a "penalty kick" in response to its strikes. While fears had mounted that the global economy was entering a murky period amid the absence of any sign of a settlement between the parties, the situation turned around at record speed, and instead of the Strait of Hormuz being closed, Israel and Iran agreed to a truce on an American proposal.
Since June 13, the date of the Israeli attack on Iran, global markets have witnessed notable turmoil due to escalating confrontations between the two sides, manifested in fluctuating oil and gas prices, volatile share prices, and disrupted supply chains. This raises questions about the extent to which oil prices are affected by the renewed tension between Iran on one side and Israel and the United States on the other, especially as recent conflicts, from the Ukraine-Russia war in 2022 through the aggression against Gaza and then Lebanon in 2024, point to a declining impact of regional tensions on oil prices and global markets.
After oil prices rose by 3% to nearly $80 following the outbreak of the Israel-Iran war, they quickly fell back, contrary to what used to happen during every geopolitical flare-up in the Middle East, when prices would climb to new levels, much as occurred during the 1973 war between the Arabs and Israel, when the price of a barrel reached $11 after having been stable at an average of $2.32.
With the onset of the Islamic Revolution in Iran in 1979, the price per barrel reached nearly $25, jumping to $37 with the outbreak of the Iran-Iraq War in 1980. Oil prices also climbed with the start of the Arab Spring in 2011 to reach approximately $106, following sharp price fluctuations over the 20 years separating the two crises.
The Russia-Ukraine war in 2022 caused a sharp spike in oil prices, with Brent crude hitting $139 a barrel the day after the war began before retreating and returning to its 2021 level of $70 a barrel. That pullback was driven by a slowing global economy and a shift by European countries toward greater reliance on alternative sources and clean, renewable energy, even though Russia is the second-largest exporter of crude oil and the main exporter of gas to Europe.
The Israeli aggression against Gaza on October 8, 2023, likewise pushed the average price of a barrel of oil up to $83, a 14% increase over its 2022 level. By contrast, oil prices fluctuated over the course of 2024, falling during the first half of the year to roughly $74, rising again early in the second half to touch $81 briefly, and then dropping back during the third quarter of the year to $75.
Conversely, oil prices held onto their gains following the outbreak of the Israel-Iran war for only a single day, reaching $78.93 a barrel before falling back to their previous level. Meanwhile, both JPMorgan and ING had projected that oil could reach between $130 and $150 a barrel on fears of widening confrontations, whereas Potomac River Capital went no further than forecasting that oil prices would remain at elevated levels.
Iran's reluctance to close the Strait of Hormuz in retaliation for the US strikes on three Iranian nuclear facilities did not stem from any desire to keep oil prices and maritime shipping rates (which were already high) from rising, or to prevent price increases on global markets, but rather from a need to preserve the continued export of its oil, which is under US and European sanctions, through the Strait of Hormuz to China, the largest consumer of Iranian oil, and to other countries. Closing the Strait of Hormuz runs counter to Iran's own economic interests first, and those of its economic partners second.
It is worth noting that 30% of global trade and 20% of the oil produced by Iran, Iraq, Kuwait, Saudi Arabia, the United Arab Emirates, and Bahrain, in addition to Qatari gas, pass through this strait bound for China, as well as India, Japan, and Korea. That reality made the scenario of closing the Strait of Hormuz unlikely, calmed global market fears, and prevented prolonged volatility. Stability was further reinforced by the move among OPEC members to raise output and reclaim market share, alongside higher production from countries outside the Organization of the Petroleum Exporting Countries (OPEC).
Moreover, the transformation of the United States from an oil importer into an oil exporter following the boom in its shale oil discoveries has left it unconcerned by a closure of the Strait of Hormuz except from a military standpoint. At the same time, the US administration is keen on the one hand to keep global oil prices from rising, while urging investors to undertake more exploration and drilling, with President Trump repeating his famous catchphrase, "Drill, baby, drill," an ambition thwarted by low oil prices.
Whereas geopolitical tensions once played the leading role in shaping oil prices, their effect today is confined to short-term fluctuations. Despite the continuation of the Russia-Ukraine war, as well as the ongoing Israeli war on Gaza and the aggression against Iran, and the fears these conflicts raise for the stability of the entire region, the reaction of oil markets has been limited to a temporary and modest increase in prices.
Ultimately, oil's loss of its role as a strategic commodity lies in the transformation of the United States into an oil-producing nation, preventing oil from being used as a lever of pressure against it. In addition, rising output from OPEC countries and the entry of new nations into the club of oil producers are creating a supply surplus at a time when the global economy is suffering from a slowdown that is weakening demand. All of this strips oil of its status as a strategic commodity, despite its pivotal role in the global economy.
Translated from Arabic with AI. Read it in Arabic