Following the escalation of the Middle East conflict in which Iran attacked Israel, the price of a barrel of oil increased by 4%. However, after the peak of the attack, prices started to stabilize, as explained by Aurelio Ochoa, vice president of the Osinergmin Board of Directors.
According to the expert, this was primarily because there is an abundance of oil worldwide, and secondly, because Saudi Arabia, one of the largest oil exporters, chose not to adhere to the regulations of the Organization of the Petroleum Exporting Countries (OPEC).
“They have announced plans to increase their production. They have around 2 million barrels per day that they could release at any moment, but they will do this gradually to avoid further affecting the price,” Ochoa stated.
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Before the conflict, the average price of OPEC oil was US$73.59 in September, down from US$78.37 in August.
Ochoa further noted that historically, similar events have caused oil prices to skyrocket by 20% to 30%, but this time it has not happened.
César Huiman, a senior analyst of equity research at Renta4 SAB, explained that the conflict in the Middle East has introduced a new risk dynamic in the commodity markets, particularly affecting gold, oil, and the dollar.
“Although the current situation has caused significant short-term movements, the risks of a considerable escalation still linger. We maintain a cautious approach regarding the potential long-term implications of this conflict, which could significantly impact the prices of safe-haven assets and global energy costs, particularly for emerging economies like Peru.” Huiman mentioned.
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It is important to note that during his presentation at the Congressional Economic Commission, Julio Velarde, president of the Central Reserve Bank (BCR), stated that the price of oil remains under control.
“It is experiencing a rebound due to the situation in the Middle East, but the outlook, disregarding the conflict, is relatively benign for oil. Prior to these events, Saudi Arabia indicated it would increase its production since other OPEC countries aren’t adhering to the regulations.” he agreed with Ochoa.
Impact on Other Commodities
The price of gold continues to break records and is reported to have grown by 15% in the last quarter (July – August – September) as mentioned this Monday by Mario Guerrero, Investment Strategy Manager of Scotia Wealth Management Peru at Scotiabank. Currently, it stands at US$2,652.08 per ounce, marking an increase of nearly 30% so far this year, according to Isaac Foinquinos, a macroeconomic analysis expert.
According to the expert, gold had a significant rise yesterday due to the increasing geopolitical tensions which amplified the demand for safe-haven assets like this precious metal.
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In addition to the war between Russia and Ukraine, the conflicts in the Middle East involving Israel, and the trade war and tensions between the United States and China are driving this high demand for gold. According to Foinquinos, another factor contributing to the price increase is expectations surrounding U.S. interest rates. Furthermore, he pointed out that the rising physical demand for gold from central banks worldwide is due to a diversification of their currencies and reserves.
Regarding the exchange rate, Huiman concurred that the conflict has resulted in increased prices for this safe-haven asset. This situation has added a significant risk premium to these assets, given the potential for disruptions in crude oil flows from the region.
“The dollar has shown consistent strength, with the Bloomberg Dollar Spot Index recording daily gains this week. This appreciation is attributed to both the geopolitical environment and moderated expectations regarding aggressive rate cuts from the Federal Reserve (FED).” he added.
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However, the situation in the Middle East puts upward pressure on the dollar as investors flock to safe assets, solidifying their positions during times of global uncertainty.
According to the Renta4 representative, there was a 5% increase in oil prices on October 2; however, the energy market has not experienced severe disruptions, suggesting that the impact on gold has been mostly speculative.
Besides oil and gold, natural gas is another commodity that may be affected by the Middle Eastern situation, Huiman indicated. If the conflict disrupts supply routes in the region, natural gas prices could rise, he explained. Additionally, industrial metals like copper may face volatility due to global economic uncertainty, he added.
“If tensions prolong or worsen, demand for industrial metals in key markets such as Asia and Europe may be adversely affected, which will indirectly impact their prices,” he pointed out.
Impact in Peru and Perspectives
According to Foinquinos, if oil prices increase for an extended period, it could impact inflation through rising fuel prices and costs of goods and services that rely on this ‘commodity’, such as transportation and the production of other goods.
“It is unclear whether this impact will be persistent, as recent weeks have shown signs of weaker global demand, which led to a significant drop in oil prices. This can persist and offset geopolitical risks.” he explained.
Regarding gold, a higher price would enhance the value of our exports, as this metal ranks as the second most important mineral in our export basket after copper, the economist noted.
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Moreover, an increase in gold prices could elevate the incentives to boost gold production; however, this would primarily be informal, as formal production finds it more challenging to respond quickly to high price signals.
“In the short term, gold prices may continue to rise if further interest rate cuts are anticipated in the United States, but rising oil prices could limit this. If the latter’s increase is sustained, it could slow down the interest rate adjustment cycle in the U.S. and cause gold prices to rise more gradually or remain stable,” Foinquinos explained.
However, in the medium term, gold prices are expected to increase further as interest rates in the United States are predicted to decrease, either swiftly or slowly.
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For Huiman, the conflict in the Middle East has mixed implications for Peru. “Consensus projections indicate that if crude oil prices consistently exceed US$100 per barrel, energy costs in the markets could rise by at least 5% in the coming months, which in turn would accelerate inflationary pressures, affecting both consumers and sectors heavily reliant on energy and transportation,” he pointed out.
The Renta4 specialist added that the development of the conflict in the Middle East, especially if it impacts global oil supply, will be crucial to the trajectories of both assets. Finally, the persistence of global inflation will also be a key factor influencing the demand for safe-haven assets.
Impact of Middle East Conflict on Oil Prices and Commodities
After the escalation of the Middle East conflict in which Iran attacked Israel, the price of a barrel of oil rose by 4%. Aurelio Ochoa, vice president of the Osinergmin Board of Directors, explained that following the critical point of the attack, the price began to normalize.
According to Ochoa, two primary factors contributed to this stabilization:
- There is an abundance of oil in the world.
- Saudi Arabia, a major oil exporter, decided to increase production rather than comply with OPEC regulations.
“They have indicated that they are going to increase their production. They have retained around 2 million barrels per day that they could release at any time, but they will do so gradually to avoid further impacting the price,” said Ochoa.
Before the conflict, the average price of OPEC oil stood at $73.59 in September, down from $78.37 in August. Historically, similar conflicts have led to price surges of up to 20% or 30%. However, this time the fluctuations have been more measured.
César Huiman, Senior Analyst at Renta4 SAB, noted that this Middle Eastern conflict has introduced a new risk dynamic in commodity markets, particularly impacting oil, gold, and the dollar.
“The situation has generated important movements in the short term, but the risks of significant escalation remain. We are cautious about potential prolonged implications, especially for emerging economies like Peru,” added Huiman.
Current Trends in Oil and Other Commodities
Ochoa indicated that oil prices have a controlled outlook despite recent volatility. He explained that current geopolitical tensions are driving a rebound in prices, but the broader outlook for oil remains relatively benign if we set aside the conflict.
Market Reactions
| Commodity | Price Change | Possible Factors |
|---|---|---|
| Oil | $73.59 (September average) | Increased production by Saudi Arabia; global oil abundance |
| Gold | $2,652.08 per ounce | Geopolitical tensions; increased demand for safe haven assets |
| Natural Gas | Volatile (pending supply disruptions) | Potential interruptions in supply routes |
The price of gold has soared, rising nearly 30% this year, reaching $2,652.08 per ounce. This increase is attributed to heightened geopolitical tensions, which boost demand for safe-haven assets like gold. Mario Guerrero from Scotia Wealth Management noted that gold prices are also influenced by expectations concerning U.S. interest rates and physical demand from global central banks seeking to diversify their reserves.
Effects on Currencies
The ongoing conflict is exerting upward pressure on the dollar, as investors gravitate towards safe assets amid global uncertainty. The Bloomberg Dollar Spot Index has shown gains throughout the week, influenced by the geopolitical climate and moderated expectations for aggressive rate cuts by the Federal Reserve (FED).
Potential Impact on Natural Gas and Industrial Metals
If the Middle Eastern conflict disrupts supply routes, natural gas prices could also climb. Huiman warns that industrial metals like copper could experience volatility due to global economic uncertainty, especially if tensions extend and impact key markets in Asia and Europe.
Implications for the Peruvian Economy
Higher oil prices could eventually lead to increased inflation in Peru through elevated transportation and production costs. Foinquinos elaborates that while geopolitical risks persist, recent trends of weaker global demand could counterbalance prolonged price increases in oil.
Notably, an increase in gold prices would positively affect Peru’s export economy, given gold’s significance as a key mineral in national exports. While informal production may rise with higher gold prices, formal production could lag in its response.
“In the short term, gold may continue to rise as interest rate cuts are expected in the U.S., but if oil prices increase significantly and persistently, it could affect the overall cycle of reacting interest rates,” said Foinquinos.
Looking Ahead: Market Dynamics and Future Prospects
The ongoing Middle Eastern conflict will be crucial in determining the trajectory of oil prices and commodities, particularly if it impacts global oil supply. Huiman concludes thoughtful perspectives, noting that if crude oil surpasses $100 per barrel sustainably, this will lead to an approximate 5% increase in energy costs and further inflationary pressures on both consumers and energy-heavy industries.
In summary, the immediate and long-term effects of geopolitical conflict on global commodities are profound and multifaceted. Stakeholders, particularly in emerging economies, must stay alert to monitor how these events shape market dynamics and future economic conditions.
