Israel-Iran War Shows Oil Markets Less Tied to Middle East Tensions
The muted response of oil prices during the recent Israel-Iran war reflects a significant shift in global energy dynamics. It signals growing market resilience and declining dependence on Middle East oil, once a key driver of price volatility.
Market Reaction Remains Measured
After Israel launched a surprise strike on Iran on 13 June, Brent crude—a key oil benchmark—rose from below $70 per barrel to a peak of $81.40 by 23 June, following US attacks on Iranian nuclear facilities. Despite the geopolitical intensity, this 15% increase was considered moderate by historical standards.
Oil prices quickly dropped the same day after Iran’s retaliatory strike on a US military base in Qatar caused minimal damage and appeared to signal de-escalation. Prices fell further to $67 by Tuesday when US President Donald Trump confirmed a ceasefire between Israel and Iran.
Notably, oil and gas supplies from the Middle East remained uninterrupted throughout the conflict. The feared blockade of the Strait of Hormuz, which channels nearly 20% of global oil and gas, did not occur.
Diminishing Risk Premium for Mideast Conflict
Historically, Middle East tensions triggered sharp oil price surges. The 1973 Arab oil embargo caused prices to quadruple, while the 1979 Iranian Revolution doubled them. Similar spikes followed Iraq’s invasion of Kuwait in 1990 and the start of the 2003 Gulf War.
In contrast, today’s energy markets respond more rationally. Advanced technologies like satellite tracking and real-time data analysis help traders better assess supply risks, resulting in calmer price movements during crises.
Smarter Infrastructure and Energy Diversification
Middle East producers have adapted as well. Countries like Saudi Arabia and the UAE now have alternative export pipelines that bypass the Strait of Hormuz. Saudi Arabia’s East-West pipeline to the Red Sea handles up to 5 million barrels per day and could be expanded. The UAE operates a 1.5 million barrel-per-day pipeline to Fujairah, also outside the Strait’s choke point.
Additionally, regional producers hold large overseas storage reserves, enabling them to maintain supply through short-term disruptions.
Global Supply Fundamentals Have Shifted
Perhaps most critically, the global reliance on Middle East oil has declined. New production from the US, Brazil, Canada, Guyana, and China has reshaped the global energy landscape. OPEC’s share of global supply has fallen from over 50% in the 1970s to just 33% in 2023, according to the International Energy Agency.
With global markets well supplied and more diverse, oil prices are less reactive to geopolitical events in the region.
A New Era for Oil Pricing
The recent conflict between Israel and Iran reinforces a trend already underway: the Middle East no longer holds the same sway over global oil prices. As supply becomes more diversified and markets more efficient, geopolitical tensions may still rise—but energy prices may not follow.
with inputs from Reuters