War in the Middle East and oil: risks and concerns

The war in the Middle East seems to have no end in sight, at a time when conflicts seem to be getting more intense. And with that, some economic problems also arise, particularly in terms of oil. Experts have warned about this problem, with Vítor Madeira, an analyst at XTB, saying that oil “is under geopolitical pressure”.

The analyst told our newspaper that “recent developments in the conflict between Iran and Israel have generated high volatility in international oil markets.” However, he added, “the scenario remains highly uncertain, requiring continuous monitoring by investors.”

Vítor Madeira also notes that, at this moment, there are two factors that should be highlighted with a potential direct impact on oil prices. The first is the possible involvement of the US in the hostilities: «The rhetoric of the Iranian supreme leader, stating that the country will not surrender and that an American intervention could have severe consequences for the US, increases the risk of regional escalation».

The other factor is related to the threat of blockage of the Strait of Hormuz. “This strait is responsible for approximately 20% of global maritime oil transport,” recalls Vítor Madeira, adding that “any disruption to its operation would represent a significant shock to supply, with immediate consequences for international prices of the raw material and the goods transported.”

The expert also details that, despite the tension, on Wednesday (at the time of the analysis), the markets reacted «moderately» with Brent falling by around 2.5%. This correction, in his opinion, «may indicate that investors still attribute a low probability of an aggravation of the conflict». If we take a closer look, he adds, the price of Brent «remains below the highs recorded last Friday the 13th. The lack of significant movements in gold and the dollar reinforces this perception of containment, but of course everything can change quickly».

Added to this are recent statements by US President Donald Trump, suggesting that progress could be made within a week – possibly related to the Iranian nuclear program – which, in Vítor Madeira’s opinion, “contribute to some relief in short-term expectations”. Furthermore, this Wednesday, an EIA report was published “showing that crude oil inventories in the US continue to fall, which could put further pressure on prices”.

What is certain is that «geopolitical unpredictability remains high» and «any intensification in tensions, particularly in the two key factors mentioned, could reverse the recent trend and lead to new upward pressure on oil», concludes Vítor Madeira, recommending «close attention to upcoming developments in the Middle East, given its critical relevance for global energy markets».

Weeks of high volatility Ricardo Evangelista, CEO of ActivTrades Europe, also recalls that WTI oil prices «fell slightly during Wednesday's session, settling slightly above $73 per barrel». The analyst stresses that all market attention «remains focused on the ongoing conflict between Israel and Iran, which could jeopardize oil supplies from the Persian Gulf». This risk to supply, he adds, «has been one of the main drivers of the recent rise in prices – a dynamic that could worsen in the event of a further escalation, especially if oil and gas exports through the Strait of Hormuz are interrupted».

Still, Ricardo Evangelista says that, “given the gravity of the conflict, the market reaction has been relatively restrained so far.” A possible explanation for this situation “lies in the forecasts of a slowdown in the global economy, which are penalizing expectations of demand for oil.”

Another factor that stands out is the monetary policy of the United States. “Today’s decision on interest rates by the Federal Reserve, as well as the public intervention by Jerome Powell that will follow, should be closely monitored by oil traders,” says Ricardo Evangelista, explaining that, if the central bank “adopts a more cautious and dovish tone, given recent geopolitical developments – signaling a greater willingness to cut interest rates – this could boost growth expectations, improve the outlook for oil demand and offer additional support to prices.”

Taking this scenario into account, “with opposing forces influencing the price of crude oil, the coming weeks could be marked by high volatility, with an upward bias that could translate into sharp increases if the conflict intensifies”, he concludes.