Israel‑Iran Ceasefire Calms Oil Markets, Brings Temporary Relief
The oil prices had hit a five-month high over the weekend after the United States hit Iran’s nuclear facilities. Keeping the global energy market on edge, Tehran had retaliated against the US strike by hitting the US Al Udeid Air Base in Qatar. However, the calling of a ceasefire had led to a sharp drop in oil prices on Tuesday.
Brent Crude, the international benchmark for oil prices, has tumbled more than 5.6 percent so far in the trading day and is currently trading at around $66 a barrel.
The threat of Iran shutting the Strait of Hormuz, through which one-fifth of the supply passes, loomed large. However, analysts had earlier seen the move to occur as very unlikely. Iran made a similar threat in the past as well. Shutting the strait would send a major jolt through global markets.
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HSBC analysts said that the crude oil prices could top $80 a barrel if the Strait is closed. Goldman Sachs forecasts that it could be $110.
However, the strike on the US base in Qatar had calmed the global market because it suggested that economic retaliation is not at the forefront of Tehran’s arsenal. “If Iran were serious about retaliation, it would sink an oil tanker in the Strait of Hormuz. The fact that it isn’t doing that means it’s bending the knee,” Robin Brooks, senior fellow at the Brookings Institution, said in a post on the social media platform X.
Apart from the conflict, the oil market was already in a moment of flux. Spare production capacity from OPEC+, primarily in Saudi Arabia and the United Arab Emirates, could quickly add about 2.5 million barrels per day to the market, with as much as five million available over the longer term, according to analysis from Third Bridge Capital.
And this would buy time, if there is a hit on global oil supplies before it impacts the consumers at the gas pump.
Iran produces 4% of the global oil supply, most of which goes to China due to the existing global sanctions on Iranian oil. China purchases nearly 90 percent of Iran’s oil exports, totalling about 1.6 million barrels per day. China had already been struggling with the US tariffs, and any increase in energy prices would cause more damage to its economy.
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However, all western firms are now taking precautions. BP, which partners with Iraq’s Basra operation in the massive Rumaila oil field – averaging 3.32 million barrels per day – has reduced its on-site personnel, reports Al Jazeera. To help fill the supply gap, outside OPEC+, producers like Brazil, Canada, Guyana, and the US would increase output to help fill any supply gap. However, the experts say with the exception of the US and Canada, the countries may take longer to make those moves.
