Should we be concerned about a rise in oil prices? Prices increased this Friday, following a significant jump on Thursday, fueled by the potential risk of Israeli attacks on Iran’s oil production infrastructure. Around 5 p.m. GMT (7 p.m. in Paris), the price of a barrel of North Sea Brent crude oil for December delivery climbed 1.14% to $78.77, the highest rate in over a month. Meanwhile, its American counterpart, West Texas Intermediate (WTI), for November delivery, rose 1.35% to $74.99.
Oil prices surged following a brief remark by US President Joe Biden during a press exchange on Thursday. When asked about his stance on a possible Israeli strike on oil installations in Iran, Biden responded that he was “under discussion” with the Israeli government regarding the issue.
A modest price increase
In a discussion with The Tribune, Philippe Chalmin, a professor of economic history at Paris-Dauphine University and an expert in raw materials and energy, points out that the current rise in oil prices is “relatively moderate compared to the $90 per barrel two months ago”.
Olivier Gantois, president of Ufip Énergies et Mobilités, observes that, despite a nearly 10% increase in barrel prices over the last ten days, there is no “surge in oil prices”. He notes, “Price fluctuations were much more drastic when Russia, the world’s third-largest oil producer, invaded Ukraine in February 2022,” recalling that barrel prices jumped from $70 to $120.
This current increase is “not based on realities but on anticipations,” analyzes Francis Perrin, research director and professor at IRIS and an expert on energy issues in the Arab world. He asserts, “It is almost certain that there will be an Israeli response. The rest are hypotheses: how significant will the response be? What outcomes will arise from Israeli-American discussions?”
As it stands, “the oil markets do not predict or anticipate a more widespread conflict that would have significant consequences on the global availability of crude oil,” analyzes Olivier Gantois.
A conflict that benefits no one
According to Francis Perrin, “The Americans are unlikely to agree to strikes on oil facilities, as this would drive up oil prices and consequently fuel prices. This is not necessarily advantageous for Kamala Harris just weeks before the American presidential election,” he emphasizes.
For their part, Israeli authorities believe “it is not particularly strategic to target oil production,” estimates Thierry Bros, an energy expert and professor at Sciences Po. He adds, “It would be much more impactful to target refineries. This would hinder the Iranian army’s mobility and make the Iranian population aware of the consequences of their regime’s actions.”
Iran, which produced 3.4 million barrels per day in August according to the International Energy Agency (IEA), also has no incentive for escalation and would be “the first victim,” according to Philippe Chalmin. The head of Iranian diplomacy, Abbas Araghchi, stated, “Our operation is finished, and we do not plan to continue.”
Chinese demand affecting prices
While the rise in oil prices is currently limited, there is also concern that “simultaneously, markets fear a slowdown in China’s growth, which could halt the increase in its crude oil demand and drive prices down,” explains Olivier Gantois. Notably, China is facing an unprecedented crisis in its extensive real estate sector, diminished confidence among households and businesses, which is straining consumption, alongside geopolitical tensions with Washington and the European Union that threaten its foreign trade. Consequently, “fears of a slowdown in China are nearly as significant as worries about conflict in the Middle East,” according to the president of Ufip Énergies et Mobilités.
Another downward influence is Saudi Arabia, which has excess capacity estimated at 3 million barrels per day and does not wish for prices to rise too swiftly, as noted by Thierry Bros. He explains, “What OPEC (Organization of the Petroleum Exporting Countries) seeks is a price of around $80 to $90 per barrel: above $90, this would hasten the energy transition, while below $80, it does not balance their budgets.”
The outcome is that
Recent Surge in Oil Prices
Oil prices have recently shown an upward trend, with significant increases observed on Thursday and Friday. Concerns over potential Israeli strikes on oil production infrastructure in Iran have influenced this rise. As of late Friday, the price of Brent crude oil reached $78.77 and West Texas Intermediate (WTI) touched $74.99, marking notable gains.
Understanding the Causes of Price Fluctuations
A statement made by US President Joe Biden regarding discussions with the Israeli government concerning potential attacks has been pivotal in shaping market sentiments. Analysts are contemplating the implications of these actions on global oil supply and prices.
A Moderate Price Increase Amidst Geopolitical Concerns
Experts like Philippe Chalmin from Paris-Dauphine University suggest that the rise in oil prices, although significant, is relatively moderate compared to historical spikes (e.g., hitting $90 per barrel two months ago). Olivier Gantois, president of Ufip Énergies et Mobilités, reassures that the current fluctuations do not equate to a market surge. He notes that past global conflicts, such as Russia’s invasion of Ukraine, resulted in much sharper increases, with prices moving from $70 to $120 per barrel in a short span.
“The oil markets do not predict or believe in a more generalized conflagration with consequences which would be very significant on the availability of crude oil at the global level,” explains Olivier Gantois.
Is There a Likelihood of Escalation?
Analysts continue to argue the possibility of escalation. Francis Perrin emphasizes that the Americans may not support strikes on oil targets as this could result in higher oil prices and subsequently fuel prices—a situation unwelcome for political figures such as Kamala Harris ahead of the upcoming US presidential election.
The Israeli Perspective
From the Israeli viewpoint, attacks on oil production may not yield significant benefits. Thierry Bros, an energy expert, proposes that attacking refineries would be more impactful from both a tactical and public perception standpoint. Such actions could considerably hinder the Iranian military’s operational capabilities and provoke public dissatisfaction with their government.
The Iranian Stance on Conflict
Iran, which produced approximately 3.4 million barrels of oil per day in August according to the International Energy Agency (IEA), stands to lose significantly from any escalation. The Iranian officials have expressed intentions to avoid conflict, emphasizing the negative consequences of extended tensions and disruptions in their oil production.
Chinese Demand as a Price Regulator
The current rise in oil prices is curtailed partly by fears of a slowdown in China’s economic growth. China’s real estate crisis, coupled with declining consumer and business confidence, dampens crude oil demand, exerting downward pressure on prices. Gantois highlights that concerns regarding China’s economic stability are comparable in weight to the geopolitical tensions in the Middle East.
Saudi Arabia’s Role in Price Stabilization
Saudi Arabia’s surplus production capacity of around 3 million barrels per day acts as a stabilizing force in the market. Thierry Bros mentions that OPEC aims to maintain oil prices between $80 and $90 per barrel. Should Iranian production face significant disruptions, Saudi Arabia and the UAE are anticipated to compensate by increasing their exports.
| Crude Oil Type | Current Price (per barrel) | Price Change (%) |
|---|---|---|
| Brent Crude | $78.77 | +1.14% |
| West Texas Intermediate (WTI) | $74.99 | +1.35% |
What Does the Future Hold?
Looking forward, many analysts agree that as long as oil prices remain below $80 to $90 per barrel, the likelihood of substantial market disruptions remains low. The present conditions suggest that both geopolitical players and major oil-producing nations are hesitant to instigate significant price surges that could lead to volatile market conditions.
