Rosalind Evans
Fifty years after the 1973 Arab oil embargo, we again witnessed tremors in the global oil market due to the Middle East crisis. However, experts assert that the scenes of long lines at the gasoline pump and dramatic price hikes of yesteryears are unlikely to recur.
The Israel-Hamas conflict has cast shadows over oil markets, which are already grappling with production cutbacks from significant producers such as Saudi Arabia and Russia. This, combined with an expected surge in demand from China, is creating substantial concerns. Fatih Birol, the executive director of the Paris-based International Energy Agency, remarked that this situation is “definitely not good news” for the markets. According to Birol, developing nations, significant importers of oil and other fuels, stand to suffer the most if oil prices rise.
While the Gaza Strip isn’t a significant crude production center, the war threatens the stability of global oil supplies. Concerns are mounting over potential complications with Iran, which boasts some of the world’s largest oil reserves. A possible military strike by Israel on Iranian oil infrastructure could lead to a significant jump in global oil prices. The Strait of Hormuz, situated south of Iran, is a critical passage for many of the world’s oil supplies, and any disruption here could have severe ramifications.
However, the stark contrast between the present and the 1970s is worth noting. U.S. oil production has hit a historical peak, with the U.S. Energy Information Administration highlighting a record production of 13.2 million barrels per day in October. Mike Sommers, president and CEO of the American Petroleum Institute, emphasized the importance of this increased production capacity, urging U.S. policymakers to remember the vulnerabilities faced during the 1973 oil embargo.
Wildcards in the energy market, such as Iranian oil supply, Saudi Arabia’s response to potential restrictions on Iranian oil, and the uncertainty surrounding oil supply from Venezuela further complicate the scenario. The political tussle continues, with Wyoming Sen. John Barrasso criticizing President Joe Biden’s energy policies, while the Treasury Department remains committed to countering destabilizing activities in the region.
While the current Middle East crisis evokes memories of past oil disruptions, structural changes in global oil production and politics over the past few decades suggest a different outcome. While uncertainties remain, proactive policymaking and international cooperation can mitigate the potential impact on global oil markets.
