Why the escalation between the US and Iran could hit fuel prices and help Russia

The rise in Brent oil prices to $91 per barrel was the reaction of global markets to a new round of tensions between the US and Iran. What to expect in Ukraine and the world against the backdrop of these events was explained specifically for UNN by international political scientist Stanislav Zhelikhovsky.

According to the expert, the increase in oil prices is linked not only to current events in the Middle East, but also to fears of possible disruptions in raw material supplies. One of the key factors remains the situation around the Strait of Hormuz, through which a significant portion of global oil supplies pass, and that is why markets react sharply to any escalation of the conflict.

The rise in oil prices is primarily a reaction to a new phase of the conflict, to a new escalation between the US and Iran. The market is pricing in not so much the current oil deficit, but the risk of supply disruptions through the Strait of Hormuz, through which about a fifth of global seaborne oil trade passes. After new US strikes and Iranian attacks on shipping, traders began actively buying oil futures. This is what pushed prices up

However, for Ukrainian consumers in particular, the consequences could become noticeable within the coming weeks. The political scientist emphasizes that not much time usually passes between changes in global quotations and adjustments in prices at Ukrainian gas stations, and further dynamics will depend on the duration of the conflict, the exchange rate, and logistics costs.

If prices stay above $90 per barrel, gasoline and diesel could become more expensive by several hryvnias per liter. Usually, between the rise in global oil quotations and changes in prices at Ukrainian gas stations, one to two weeks pass. Traders are selling fuel purchased earlier, so the effect may be somewhat delayed. But under current conditions, the risk of fuel price increases is high

At the same time, Stanislav Zhelikhovsky does not consider the current price level to be guaranteed a long-term phenomenon. According to him, much will depend on the further development of events in the Middle East and the ability of the global market to adapt to new conditions. However, the largest oil producers could also play an important role.

So far, most analysts are not talking about a scenario of a sharp jump to $120-150 per barrel. Such a scenario would become real in the event of an actual blockade of the Strait of Hormuz or a sharp reduction in oil exports from Persian Gulf countries. If tensions begin to subside, prices could fairly quickly give back part of the increase. If escalation continues, then they could remain around the $90 mark or rise further

The political scientist pays special attention to the consequences for Russia. In his opinion, more expensive oil potentially increases Russian budget revenues, even despite the sanctions. That is why Western countries are interested in preventing a prolonged maintenance of high prices.

More expensive oil means additional revenues for the Russian budget. If Brent rises to $90-95 per barrel, then even taking into account the discount, Russian oil sells for significantly more than a few months ago, and this means more funds to finance the war. That is why the US and the European Union are trying to prevent a prolonged price jump

At the same time, according to the political scientist, there are mechanisms on the global market that can partially mitigate the consequences of a raw material deficit. This includes both the spare capacity of individual producers and the possibility of increasing production, but the final result will depend on the development of the conflict and the decisions of key players in the energy market.

OPEC+ countries and large producers have some reserve to increase production. Strategic oil reserves in many countries can also be used to smooth out price spikes. If the conflict drags on, there will be attempts to increase production and compensate for a possible deficit, and this could ease the situation and curb further price growth

US teeters on return to all-out war with Iran - WP20.07.26, 08:52 • 4360 views