Calls for an oil embargo on Israel in response to its military offensive in Gaza have been raised by Iran and other Middle Eastern countries. However, analysts and OPEC sources believe that the energy landscape has changed significantly since the 1973 OPEC embargo, making a new embargo unlikely. The majority of OPEC's oil exports now go to Asian clients, and the US has become the largest producer of oil and gas with a strategic petroleum reserve. Additionally, the economic transformation planned in the Gulf Cooperation Council region requires a sustained absence of conflict. Therefore, the likelihood of a 1970s-style oil embargo is low.
Geopolitical tensions in the Middle East, particularly in the oil market, are fueling volatility in oil prices. The recent clashes between Israel and Hamas have sent oil prices on a rollercoaster ride, swinging between fear-driven surges and cautious retreats. This followed a previous session's rally of over 4%, fueled by concerns that the conflict might spill over into the oil-rich Middle East. The situation remains fluid as Israel's troops engage in a battle with Hamas gunmen, sparking concerns of a broader conflict that could involve other countries, including Iran. Market experts believe that the conflict could exacerbate ongoing trends that have weighed on risk assets. One of the key concerns is the potential for a rebound in oil prices, which could negatively impact US economic growth. The conflict could also complicate matters for central banks worldwide, including the Federal Reserve. Investors are bracing for potential market volatility and closely watching the situation and its impact on the economy, particularly in relation to energy markets and bond yields.
Tensions between Israel and Iran could lead to a military conflict that could involve major oil and gas producers in the Middle East, including Saudi Arabia and the UAE. The Middle East accounts for nearly 40% of global oil exports, and any escalation of conflict could impact trade flows through the Strait of Hormuz, a critical shipping lane. Despite rising global oil inventories, ongoing geopolitical developments and OPEC+'s market management strategy are expected to support oil prices. China's oil demand gains are expected to slow, but the global macroeconomic outlook is somewhat positive. Non-OPEC+ liquids production is forecast to rise in 2024, while crude oil production within OPEC+ is expected to be lower. Ukrainian drone attacks on Russian refineries pose an upside risk to crude and product prices.
In addition to geopolitical tensions, OPEC's return to oil market dominance is also causing concerns about inflation. The Brent crude oil price has declined by 13% since peaking in late September, but its rally last quarter to a peak of $97.7 per barrel is seen as potentially awkward in the context of the prevailing narrative that both the Federal Reserve and the European Central Bank (ECB) are nearing the end of their tightening cycles. Despite the official mantra of being "data dependent," the recent rally in oil prices raises questions about the impact on inflation. OPEC's control over the oil market could lead to higher prices, which in turn could contribute to inflationary pressures. This development is being closely watched by investors and central banks, as it could have implications for monetary policy decisions.
Ron Struthers expects the Middle East conflict to widen and eventually propel oil prices much higher. He suggests that an oil embargo could be implemented, leading to a surge in oil prices. He recommends buying Callon Petroleum (CPE) as it is cheap and would benefit from higher oil prices. He also advises selling tanker stocks like DHT due to the uncertainty surrounding the Middle East situation. Struthers believes that Western energy stocks could benefit from the disruption in global oil supplies caused by the conflict.