The rapid developments in the Middle East and the possibility of Israel striking them petroleum of Iran sent shockwaves through the markets, but according to Politico, such an event would not cause any tremors in the energy industry.

The President of the United States, joe biden, said yesterday that the US was “discussing” the possibility of Israel striking Iranian oil facilities, sending the price of oil jumping 5% after crossing $77 a barrel.

The Iran it is the seventh largest oil producer in the world, exporting about half of its production abroad.

Mr Biden later told reporters he did not believe there would be an all-out war in the Middle East, but there was still “much to be done” to bring calm to the region.

The American president’s statements caused tremors on Thursday, but as Politico notes, the global oil supply has new ways to protect itself.

Middle East and oil markets

The risk of an escalation of war between Israel and Iran is testing the world market’s faith that crude oil prices will not be affected by the escalation of hostilities in the Middle East. For decades, conflicts in the oil-rich region have often spooked oil markets and weighed on the economy. But now things look, at least so far, different. It’s a welcome development for the Biden administration, which has come under fire from Republicans over fuel prices and is trying to contain the fallout from Iran’s firing of nearly 200 missiles into Israel on Tuesday.

Increased oil production from the United States, Brazil and elsewhere over the past 2 decades has diversified the world’s fuel supply, meaning oil markets rely less on fuel from the Middle East, energy and security analysts tell Politico. That’s despite oil prices jolting higher on Thursday after President Joe Biden publicly acknowledged that the fighting could extend to Iran’s oil facilities.

“No matter how crazy the thing is, it has minimal impact on oil. The market has proven time and time again that it can cover shortfalls,” says Michael Knights, an analyst at the Washington Institute for Near East Policy think tank.

The next stages of Israel’s conflict with Iran could test market resilience in ways not seen in decades, as Israeli Prime Minister Benjamin Netanyahu considers how to retaliate for Tuesday’s missile attacks – with oil supplies and Iran’s nuclear facilities emerged as the most likely targets.

The Iranian response to such an attack could potentially include attacks on targets elsewhere, such as Saudi Arabia’s oil fields, or lead to the shutdown of a key oil shipping hub in the Persian Gulf.

Oil traders’ reaction to Biden’s comment

Asked Thursday morning if he would support an Israeli strike on Iran’s oil facilities, Biden told reporters: “We’re discussing that. … And nothing is going to happen today. We will discuss it later,” he added.

So far, the reaction from oil traders has been subdued. U.S. crude oil futures initially jumped more than 5 percent on Tuesday morning when warnings of an imminent Iranian missile attack trickled into the market, but prices quickly recovered after the attack, which destroyed most of the missiles before hit their targets. They bounced again on Thursday after Biden’s remarks, eventually climbing above $73 — though that’s still well below the $80-plus levels where they’ve been trading for much of the summer.

Even a massive escalation of hostilities in Iran’s oil-producing neighbors would likely push oil only around $100 a barrel, a price that would push U.S. gasoline prices between $3.50 and $4.50 a gallon, experts said. . The average price of regular gasoline in the U.S. was $3.19 a gallon on Thursday, about 60 cents lower than a year ago, according to the American Automobile Association.

Oil prices hit their highest point during the Biden administration near $124 a barrel in March 2022, shortly after Russia’s invasion of Ukraine, pushing gasoline prices to a record $5.03 a gallon that year. spring. That toss continues to serve as a major point of contention for former President Donald Trump in his campaign to defeat Vice President and presidential candidate Kamala Harris. But rising US oil production to the highest levels of any country in history, as well as increased output from South American producers, has eased the market’s reliance on Middle Eastern oil. And more recently, weak Chinese fuel demand has weighed on global prices. Saudi Arabia, the United Arab Emirates, Libya and other oil producers have excess capacity that could easily cover any supply shortfalls if an Israeli strike on Iran’s oil wells or export facilities pushed up prices, they said analysts.

The biggest fear

As Politico notes, the White House and State Department did not respond to questions about whether the US is advising Israel on how it might retaliate against Iran. Douglas Rediker, senior fellow for foreign policy, global economics and development at the Brookings Institution, said the Biden administration may try to persuade Israel not to target Iran’s major oil infrastructure and stick to military targets. The biggest fear is that Iran is escalating the conflict significantly to draw other Middle Eastern countries and the United States directly into the fighting, Rediker argued.

But even if Iran’s oil output is severely damaged, that would reduce supplies by probably less than 2 million barrels a day, analysts said. That’s a relative drop in the ocean in a global market that consumes 100 million barrels a day, Rediker said. The United States or China could make up any supply shortfall with releases from their strategic oil reserves, he added. “If you take all of that out, then global supply is down 1.75 million barrels per day,” Rediker said. “That’s why SPRs exist. Both the US and China have significant strategic oil reserves.”

Market resilience

Among other things, Politico reports that many political leaders may still remember the oil shock of the 1970s, when the Saudi-led oil cartel imposed an embargo on the US, sending oil prices soaring from 1, $80 a barrel to $11.65, equivalent to an increase of $66 in today’s dollars.

But as shown by Iran’s 2019 attack on Saudi Arabia’s critical Abqaiq oil refinery, which caused a brief spike in prices that quickly receded, today’s oil market is less dependent on one source of supply, Landon said. Derentz, senior director for global energy security at the Atlantic Council Global Energy Center and former national security and energy official during the Obama, Trump and Biden administrations.

“The fact that Saudi Arabia was so resilient and quickly restored energy security in the face of such aggressive action half a decade ago has created a tolerance for risk,” the analyst concludes.