Does regional instability dictate the price of oil?
To explain that, if we check the news reports in the past 12 months, we clearly see an aweinspiring number of reports almost everywhere talking about the Crimea-Ukraine conflicts, and the war in Donbass. The Russian involvement in one side and the American-EU’s in the other.
Yet, we saw Russia remained (and is still one of) the Europe’s most important natural gas suppliers despite recriminations between Russia and Europe. In other words, Europe’s energy security was not rocked, and the oil market remained normal, between $85.00 in January 2014 and $93.00 until June 2014.
Let’s take another good example. The international community woke up with horror and shock when the IS seized control of Iraqi city of Mosul in June 10th which followed by taking over many other territories in Iraq and Syria. At that moment, the price of oil had scarcely increased from $93.60 to reach $97.67 in June 23rd before it sank to below $45.00 later on, according to the WTI database archive.
Finally, when Saudi Arabia launched military ' Packets Storm' operations against Houthis in Yemen last month, the oil price had barely increased to reach $59.00 from $48.00 taking a period of one entire month.
Thus, it can be argued that political unrest, military mobilization, and civil wars did not cut the chain of oil supply to the market, even the oil price did not rocket. That means the “regional instability” theory had marginal implications visà-vis security of supply.
To conclude, the three significant incidents mentioned above were supposed to create a panic in the oil market and upsurge the oil price to a new higher record even for a short period due to oil supply cuts from Russia and the Middle East, but that did not happen. Rather, it suggests potential divorce between regional instability and security of supply in the future, i.e. no matter how insecure an oil producing region will be, the oil supply from that zone might continue as usual.