Oil: why Iran x Israel does not raise prices – 10/01/2024 – Vinicius Torres Freire

The price of oil jumped, as the news read about the new war between Israel, Iran, Hezbollah, Hamas and smaller groups. “Oil Soars”. Hmm. The price of a barrel initially jumped by around 5%; in the middle of the Brazilian afternoon, it rose between 2.5% and 3%, close to US$74 (the Brent type). It’s irrelevant.

A barrel is cheaper than the day before Hamas attacked Israel, on October 7, 2023, when it cost US$84. In mid-October, Israel began shooting at Hamas terrorists and killing thousands of Palestinians. A barrel reached US$93, the peak of the last 12 months.

One can always expect new misfortune in the Middle East, but the price of oil doesn’t care much about war, massacres and risks. As fuel market analysts say, the “fundamentals”, production and consumption, have been predominant. Basically: 1) Too much oil; 2) Those involved in the conflict, apart from the Houthis, do not want trouble in the Red Sea or in a fuel production and transport facility.

The OPEC countries would have capacity slack of 6 billion barrels per day (for global consumption of 100 billion barrels per day). They have been cutting production since 2022 in order to maintain a price high enough to cover their governments’ bills. But the United States, Canada and also Brazil and Guyana put more oil in the market — yes, Guyana, which explores oil in a region neighboring the Amapá sea, where Brazil wants to drill a well. Finally, Russia and Iran circumvent sanctions and sell to China.

China’s economy grows much less; uses less fossil fuels because it tries to decarbonize, becomes more efficient, uses more electric cars, more bullet trains.

In April of this year, there had been skirmishes between Israel and Iran, then almost a “drôle de guerre” (arak war). That’s when the Iranians launched a harmless cloud of drones over Israel. That April, some oil analysts quoted in the global financial media said that the price of a barrel could “easily” exceed US$100; the average for the second half of this year would be well above US$90. The reasons would be the spread of the conflict.

Aside from a hiccup in July, the price trend was downward, dropping to just under US$70 at the beginning of April, the lowest value in almost three years.

American stock markets fell a little, but nothing different from a worse day; what’s more, they are close to record levels. The interest rate on 10-year US government bonds barely budged (it fell, as in times of risk US debt securities are generally bought). In Brazil, the horrors in the Middle East didn’t even cause itching — or nothing, given the volatility of the local currency, interest and stock markets.

Can some warlike madness shake the owners of money? It remains to be seen where the nudge will come from. Israel destroys Hamas and Hezbollah. He kills leaders of Iran and allies wherever he wants, with aerial bombardment, electronic explosions and infiltration even in the places where these people frequented.

Due to a lack of military capacity, fear of the death of the ayatollahs or of seeing its precarious economy destroyed, Iran has reacted to the minimum; it has no allies willing or able to go to war. Until terrorists and militias reorganize in force, it will take time. It will take extra madness to change prices.

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