War has potential to raise global price of fuel
The reverberations of the war between Israel and Hamas are being felt not only in the region, but across the global energy economy. In a newly published report, Dr. Gil Michael Bufman, Bank Leumi’s chief economist, elaborated on the situation’s wide-reaching ripple effects.
In a proactive move, the Israeli Tamar reservoir halted the flow of natural gas, which has led to the suspension of gas exports to Egypt via the East Mediterranean Gas (EMG) pipeline. This sudden disruption is expected to have a significant impact on Egypt’s ability to export liquefied natural gas to Europe and various other nations. Less available gas means higher prices, and this could potentially impact the wider global gas market.
The situation may also affect gas-exporting countries like Qatar, which is a major player in the global gas market. If things worsen, gas prices around the world could keep climbing.
The conflict in the Middle East has already cast a shadow over energy prices worldwide, but there are more ominous clouds on the horizon. The potential expansion of the conflict into other arenas, drawing in additional regional players, poses a genuine risk to energy prices.
A key player in the complex web of Middle East geopolitics is Iran, which holds significant influence in the region. If the United States decides to take action against Iran, whether through legal means or innovative “sanctions-bypassing” methods, this could diminish the Islamic Republic’s capacity to export oil. Such an outcome would undoubtedly have a pronounced impact on global oil supply and, consequently, oil prices.
Another peril to look out for is the delicate balance of relations between the United States and Saudi Arabia, which has been historically intertwined with progress toward peace agreements in the region, particularly concerning Israel. If these peace efforts stall or deteriorate, it could lead to tensions between the US and Saudi Arabia. In response, the kingdom may opt to curtail oil production, further straining global supply.
The geopolitical situation is further complicated by the potential for regional destabilization, which includes concerns about the free passage of oil tankers through the strategically vital Hormuz Strait. Any disruptions in the flow of oil through this critical waterway could have cascading effects on global oil markets and supply.
In simple terms, the outlook for oil prices in 2023 isn’t great. Experts predict that a barrel of Brent crude could cost around $90 to $95 later this year.