A new oil crisis?

26. October 2023
-IAM, News

Hugues Chevalier, Economist

Fifty years after the Yom Kippur War (6 October 1973), following the Hamas terrorist attack in Israel (7 October 2023) and the Israeli army’s response in Gaza, fears of a new oil blockade by Arabic countries are resurfacing. These fears seem to us to be overestimated. Although parallels can be drawn, the current situation is quite different, both in terms of the oil market and geopolitics. On the oil market, since last summer, and following Saudi Arabia’s decision to cut its crude production by one million barrels a day, prices on the world markets have indeed risen in recent weeks. Last week, on Monday 9th, following the Hamas attack, prices rose by just 4% to almost $90 a barrel, in line with the geopolitical risks of an extension of the conflict. This price rise is therefore nothing like the one seen in 1973. And no blockade was put in place following the Israeli counter-offensive. What’s more, on a global scale, oil now accounts for only around 30% of primary energy, compared with over 50% in the 1970s. What’s more, the United States is now the world’s leading producer of crude oil and is almost entirely independent of the Middle East for its supplies. And the rise in global demand for oil has slowed sharply in recent weeks. The risks of supply disruption for OECD countries have therefore fallen sharply compared with the situation in 1973. However, a blockade is not entirely out of the question, but it would not have the same impact as it did fifty years ago. In the immediate future, crude oil prices could rise further with any additional sanctions imposed on Iran for its active policy of supporting Hamas and the Lebanese Hezbollah. The Islamic Republic’s exports have risen by 0.7 million barrels a day since 2021. Without this contribution, and with the reduction in supply from Saudi Arabia, prices could still rebound. But a total halt to OPEC+ exports to OECD countries is out of the question for the time being.