The Middle East tensions between Israel and Iran have consistently sent ripples through global oil markets, often leading to immediate price surges. These spikes are primarily driven by a “risk premium” as traders factor in the potential for supply disruptions, especially concerning the Strait of Hormuz. This vital chokepoint, through which roughly one-fifth of the world’s crude oil flows, becomes a major focal point during periods of heightened conflict. While a full-blown war could theoretically push oil prices well over $100 per barrel, as discussed by Oxford Economics on the impact of the Iran-Israel escalation, due to direct attacks on infrastructure or a prolonged closure of the Strait, the market’s initial reactions often reflect a fear-driven premium rather than sustained disruption.

However, the longer-term picture reveals a more nuanced reality. Despite the dramatic headlines, the global oil market has demonstrated resilience. Major factors mitigating prolonged price hikes include ample global crude supply, significant spare production capacity from OPEC+ nations like Saudi Arabia and the UAE, and increasing output from non-OPEC sources. These elements collectively offer a buffer against disruptions, allowing other producers to compensate for potential losses. As recent analyses suggest, the oil market often prioritizes supply and demand fundamentals over geopolitical risks in the long run. Even during periods of intense conflict, if actual oil flows remain largely unimpeded, prices tend to stabilize after initial volatility, as seen during periods of a fragile Iran-Israel ceasefire that calmed oil markets. For a deeper understanding of how the conflict impacts various markets, including oil, you can refer to insights from Julius Baer on the Israel-Iran conflict’s impact on oil prices, gold, equities and bonds.

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