Fifty years after the 1973 Arab oil embargo, the current crisis in the Middle East has the potential to disrupt global oil supplies and push prices higher. But don鈥檛 expect a repeat of the catastrophic price hikes and long lines at the gasoline pump, experts say.
The Israel-Hamas war is 鈥渄efinitely not good news鈥� for oil markets already stretched by and expected stronger demand from China, the head of the International Energy Agency said.
Markets will remain volatile, and the conflict could push oil prices higher, 鈥渨hich is definitely bad news for inflation,鈥� Fatih Birol, executive director of the Paris-based IEA, told The Associated Press. Developing countries that import oil and other fuels would be the most affected by higher prices, he said.
International benchmark Brent crude traded above $91 a barrel on Thursday, up from $85 per barrel on Oct. 6, the day before Hamas attacked Israel, killing hundreds of civilians. Israel immediately launched airstrikes on Gaza, destroying entire neighborhoods and killing hundreds of Palestinian civilians in the days that have followed.
Fluctuations since the attack pushed oil prices as high as $96.
The price of oil depends on how much of it is getting used and how much is available. The latter is under threat because of the Hamas-Israel war, even though the Gaza Strip is not home to major crude production.
One worry is that the fighting could lead to complications with Iran, home of some of the world鈥檚 largest oil reserves. Its crude production has been constrained by international sanctions, but oil is still flowing to China and other countries.
鈥淚n order to get a sustained move (in prices), we really would need to see a supply disruption,鈥� said Andrew Lipow, president at Lipow Oil Associates, a Houston-based consultant.
Any damage to Iranian oil infrastructure from a military strike by Israel could send prices jumping globally. Even without that, a shutdown of the Strait of Hormuz that lies south of Iran could also shake the oil market because so much of the world鈥檚 supplies goes through the waterway.
Until something like that happens, 鈥渢he oil market is going to be like everyone else, monitoring the events in the Middle East,鈥� Lipow said.
One reason 1970s-style gas lines are unlikely: U.S. oil production is at an all-time high. The U.S. Energy Information Administration, an arm of the Energy Department, reported that American oil production in the hit 13.2 million barrels per day, passing the previous record set in 2020 by 100,000 barrels. Weekly domestic oil production has doubled from the first week in October 2012 to now.
鈥淭he energy crisis of 1973 taught us many things, but in my mind, the most critical is that American energy strength is a tremendous source of security, prosperity and freedom around the world,鈥� said Mike Sommers, president and CEO of the American Petroleum Institute, the U.S. oil industry鈥檚 top lobbying group.
In a speech Wednesday marking the 50th anniversary of the 1973 oil embargo, Sommers said current U.S. production contrasts sharply with 鈥淎merica鈥檚 weakened position during the Arab oil embargo.鈥� He urged U.S. policymakers to heed what he called the lessons of 1973.
鈥淲e cannot squander our strategic advantage and retreat on energy leadership,鈥� said Sommers, who has repeatedly criticized President Joe Biden鈥檚 policies restricting as part of Biden鈥檚 efforts to
鈥淲ith an unstable world, war in Europe, war in the Middle East, and energy demand outstripping supply, energy security is on the line,鈥� Sommers said in a speech at the Hudson Institute, a Washington think tank.
鈥淎merican oil and gas are needed now more than ever,鈥� Sommers said. 鈥淟et鈥檚 take to heart the lessons we learned from 1973 and avoid sowing the seeds of the next energy crisis.鈥�
For now, the crisis isn鈥檛 a repeat of 1973. Arab countries aren鈥檛 attacking Israel in unison, and OPEC+ nations have not moved to restrict supplies or boost prices beyond a few extra dollars.
There are several wild cards in the energy market. One is the supply of Iranian oil. Eager to avoid a spike in gasoline prices and inflation, the U.S. has quietly tolerated some exports of Iranian oil to destinations such as China instead of going all in on sanctions aimed at Iran鈥檚 nuclear program.
If Iran, which has warned Israel not to undertake a ground offensive, escalates the Gaza conflict 鈥� including a possible attack by Hezbollah militants in Lebanon supported by Iran 鈥� that might change the U.S. stance. 鈥淚f the U.S. were then also to enforce the oil sanctions against Iran more strictly again, the oil market would tighten noticeably,鈥� say commodities analysts at Commerzbank.
Lawmakers from both parties have urged Biden to block Iranian oil sales, seeking to dry up one of the regime鈥檚 key sources of funding.
Another wild card is how Saudi Arabia would respond if Iranian oil is restricted. Oil analysts say that while the Saudis may welcome recent oil price hikes, they don鈥檛 want a massive price spike that would fuel inflation, higher central bank interest rates and possible recession in oil-consuming countries that ultimately would limit or even kill off demand for oil.
A third unknown is whether more oil will reach the market from Venezuela. The U.S. agreed Wednesday to on the country鈥檚 oil, gas and gold sectors after Venezuela鈥檚 government and a faction of its opposition formally agreed to work together on election reforms.
Venezuelan production could increase in 2024. In the next six months, however, production could ramp up by some 200,000 barrels a day, a relative drop in the ocean, according to Sofia Guidi Di Sante, senior oil market analyst at Rystad Energy.
Wyoming Sen. John Barrasso, the top Republican on the Senate Energy and Natural Resources Committee, slammed the U.S. action as a 鈥済immick鈥� that appeases a brutal regime in Venezuela.
鈥淛oe Biden鈥檚 energy policies put America last,鈥� Barrasso said, citing the Democratic president鈥檚 decisions to kill the controversial Keystone XL oil pipeline and sell off taking it to its lowest level since the 1980s. The Energy Department said Thursday it will seek offers to start refilling the oil reserve in December, with monthly solicitations expected through May 2024.
鈥淗e eased sanctions on Iran, which funds terrorism across the Middle East. Now with Israel under attack, Biden is desperate for anything to mask the consequences of his reckless policies,鈥� Barrasso said. 鈥淎merica should never beg for oil from socialist dictators or terrorists.鈥�
The Treasury Department says it has targeted nearly 1,000 individuals and entities connected to terrorism and terrorist financing by the Iranian regime and its proxies, including Hamas, Hezbollah and other groups in the region.
鈥淲e will continue to take action as appropriate to counter Iran鈥檚 destabilizing activity in the region and around the world,鈥� Treasury said in a statement.
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McHugh reported from Frankfurt, Germany. Choe reported from New York.
Matthew Daly, David Mchugh And Stan Choe, The Associated Press
