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Business News/ Markets / Stock Markets/  Despite rising Iran-Israel tensions, crude oil prices hold steady – here's why

Despite rising Iran-Israel tensions, crude oil prices hold steady – here's why

The Middle East, a major global crude oil producer, faces escalating tensions between Iran and Israel. The region's instability poses risks to oil markets, with potential supply shortages affecting global oil prices. Market analysts are closely monitoring the situation for further developments.

Crude oil demand: On the demand front, various indicators point to a slowdown in China's economic activity in March, which is the world's largest consumer of crude oil. (AP)Premium
Crude oil demand: On the demand front, various indicators point to a slowdown in China's economic activity in March, which is the world's largest consumer of crude oil. (AP)

Any conflict in the Middle East could significantly affect crude oil prices, given that a majority of the world's crude oil supply originates from this region. The geopolitical instability in the Middle East has historically been a key factor driving volatility in oil markets. 

Any disruption to oil production or transportation infrastructure in this region could lead to supply shortages, thereby impacting global oil prices. As per recent statistics, the Middle East accounts for over 30% of global crude oil production. 

Also Read: Iran's crude oil output up 20% in 2 years at 3.3% of global supply: What does this mean for the Iran-Israel proxy war?

The region comprises five of the top ten oil-producing countries. Saudi Arabia holds the top position as the largest producer in the region and ranks as the world's second-largest oil producer, contributing over 12% of the global crude output.

Iran is another major producer in the region with a global share of 3.3% and home to vast oil resources. The country has recently launched an attack on Israel. 

On April 13, Iran unleashed a barrage of drones and missiles on Israel in retaliation for a suspected Israeli strike that resulted in the deaths of top Iranian officials in Syria.

Also Read: Iran-Israel war LIVE updates: Israeli military says it will retaliate against Tehran

This marked the first direct assault on Israel from Iranian territory. Various Iran-backed factions, including Hamas, Hezbollah, the Houthi movement in Yemen, and the Syrian regime led by Bashar al-Assad, have been involved in military confrontations with Israel.

Tensions between Israel and Iran have been escalating since Israel's military offensive in the Gaza Strip.

Meanwhile, Israel has vowed to retaliate for the weekend’s drone and missile attacks but has yet to provide any details about how or when. Some of the potential options range from a strike at Iran’s nuclear facilities — one of the riskiest and most aggressive possibilities — through to cyberattacks on military infrastructure or actions against Iranian proxies, as per recent media reports. 

Also Read: US to impose new sanctions on Iran; Israel decides to retaliate | 10-point

Meanwhile, the White House has decided to impose sanctions on Iran. The US National Security Adviser, Jake Sullivan, said they will impose new sanctions that will target Iran’s missile and drone programs, along with groups supporting the country’s Revolutionary Guard Corps and its defence ministry.

Crude oil prices hold steady amidst Iran-Israel tensions

Amid escalating tensions between Iran and Israel, both Brent and WTI futures have maintained stability without significant fluctuations in recent trading sessions. 

The main factor contributing to this stability is Israel's yet-to-be-determined response to Iran's attacks. Although plans for a counterattack are in motion, the timing and extent of Israel's response remain uncertain. Market analysts are closely monitoring developments in the region.

However, industry experts warn that if tensions continue to escalate, crude oil prices could quickly surge to $100 per barrel. 

On the demand front, various indicators point to a slowdown in China's economic activity in March, which is the world's largest consumer of crude oil. 

Also Read: Crude oil prices can hit $100 a barrel if Iran-Israel tensions escalate, say experts

Although the world's largest economy exceeded analysts' expectations with a robust growth rate of 5.3% in the first quarter of 2024, driven by rapid expansion in the services sector and heightened overseas demand boosting industrial exports, domestic demand within the country has yet to recover.

Despite the implementation of monetary and fiscal measures, China's retail sales growth—a crucial gauge of consumption—only increased by 3.1% year-on-year in March. This figure fell short of the forecasted rise of 4.6% and was slower than the 5.5% gain observed in the January–February period.

Also Read: China's GDP growth beats forecasts in Q1, but concerns linger over base metals' outlook

Further, US Federal Reserve Chair Jerome Powell stated late on Tuesday that there has been “a lack of further progress so far this year on returning to our inflation goal." He suggested that tight policy will likely remain in place until inflation trends sustainably move toward 2%.

Powell’s comments mark a change in his stance following a third consecutive month in which a key inflation measure exceeded analyst predictions.

The US retail data, which was released on Monday, jumped 0.7% month-over-month in March 2024, surpassing forecasts of 0.3%. This indicates that consumers continued to spend at a brisker pace than expected despite borrowing costs reaching a 23-year high.


Disclaimer: We advise investors to check with certified experts before taking any investment decisions.

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Published: 17 Apr 2024, 12:44 PM IST
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