Geopolitical Instability in the Middle East Boosts Big Oil Profits as Conflict Escalates Risks to the Global Economy
Transnational oil giants have become one of the few beneficiaries of the Israeli-Kazakhstan conflict.
On October 16, 2023, Shell Oil’s stock price hit a record high in the London stock market, rising as much as 1.5%. Shares of Exxon Mobil and Chevron also rose in New York on the same day. Other oil companies, including BP, Total, and Eni, were also “pleased” to see their stock prices rise on this day.
The stock prices of these oil majors are soaring, naturally because of rising oil prices. Since Hamas’s sudden attack on Israel on October 7, Brent crude oil has risen by more than 7%, once rising to more than $91 per barrel. Shell’s share price also rose 6.5% during the same period.
On October 19, the price of Brent crude oil rose to US$92.38 per barrel. Before Hamas raided Israel, crude oil prices had fallen back to $85 a barrel. Today, there is even talk that crude oil prices could hit $100 a barrel.
Few beneficiaries, many victims
Where there are beneficiaries, there are victims. However, in this round of conflict between Israel and Kazakhstan, there are few beneficiaries and many victims.
After being attacked by Hamas, Israel declared war on Hamas and launched a large-scale bombing of the Gaza Strip. A large number of civilians died in Kazakhstan’s attacks and Israeli retaliatory strikes. As recently as October 17, a huge explosion occurred at a hospital in Gaza, killing hundreds of people. Hamas and Israel accused each other of being responsible.
In addition to the victims in the international situation, geopolitics, humanitarian disasters, etc., there are also many victims in the economy.
When the conflict lasted for a week, the Workers’ Bank of Israel estimated that the cost of the war would reach at least $6.8 billion. Modi Shafrir, the bank’s chief strategist, said that according to the bank’s rough estimate, the cost of the war will reach at least 1.5% of Israel’s GDP (gross domestic product), which means that the budget deficit will also increase in the future. 1.5%.
More important is the international economic impact of the conflict. As mentioned above, the Israel-Kazakhstan conflict has had an impact on the international oil market, but it may also have a negative impact on the global real economy in a broader sense.
At the just-concluded biennial joint meeting of the International Monetary Fund and the World Bank, participating finance ministers and officials warned that the ominous omen of a broader conflict in the Middle East posed a new threat to the global economy, affecting Broader regional tensions will have significant economic consequences.
Kristalina Georgieva, managing director of the International Monetary Fund, said: “It is clear that this is not a new dark cloud on the safest horizon for the world economy, but rather makes that horizon even darker. “New dark clouds.”
Participants pointed out that the main economic danger posed by the Israel-Kazakhstan conflict is that Israel’s fighting in Gaza may escalate into a broader regional conflict, which will not only undermine confidence, but also put a strain on prices that have just emerged from a series of Economies recovering from the shock are bringing a new wave of inflationary pressures.
The International Monetary Fund said that a 10% rise in oil prices would push up global inflation by about 0.4 percentage points.
Economists believe that this may cause central banks of various countries to face new inflationary pressures, market confidence will also be hit as a result, and the global economic outlook will therefore add new risks.
At a previous meeting, Augustin Carstens, President of the Bank for International Settlements, said that the conflict between Israel and Kazakhstan may bring a series of unpredictable consequences to the global economy that continues to slow down and the U.S. market that is still adapting to the Federal Reserve’s high interest rate policy. Impact.
During this meeting, Eurogroup Chairman Pascal Donoghue also stated that the biggest economic question is whether the conflict between Israel and Kazakhstan will have an impact on inflation expectations, and what this means for containing price pressures in 2024.
Donoghue predicted that while the conflict between Israel and Kazakhstan continues, Europe will continue to grow, but at a slower than expected rate.
The Eurogroup consists of the finance ministers of each euro area member state.
U.S. Treasury Secretary Yellen believes that the Israel-Kazakhstan conflict will not become “the main driving factor that may affect the global economic outlook.”
However, experts pointed out that the world economy is in a fragile state when the Israel-Kazakhstan conflict occurs.
The International Monetary Fund said that more than 80% of economies today face worse prospects than 15 years ago. Earlier, the organization also predicted that rising trade barriers alone could reduce global economic output by 7% in the long run.
If the Israeli-Kazakhstan conflict spreads to the entire Middle East, the fragile global economy will only become worse.
Oil supply and demand are like walking a tightrope
Of course, since Israel and Palestine are located in the Middle East, the world’s main oil-producing area, the biggest impact of the Israel-Kazakhstan conflict is the international oil market, although neither Israel nor Palestine are major oil producers.
The International Energy Agency pointed out that although this round of conflict between Israel and Kazakhstan has not had a direct impact on physical oil supply, as the crisis worsens, the global oil market has been “trembling with fear and fear”, which will naturally affect oil prices.
In the latest report, the International Energy Agency wrote: “We expect that the global oil market will maintain a tightrope-like balance of supply and demand for a period of time. Against this background, the international community will always pay close attention to the Middle East. Oil supply risks.”
Seema Shah, chief global strategist at Principal Asset Management, said: “The key concern is the reaction of the oil market. Brent crude oil prices have not risen sharply, but the tensions have A sharp upgrade may bring further upward pressure.”
Ricardo Evangelista, a senior analyst at British brokerage firm ActivTrades, also said: “The market has two major concerns. The first concern is: This round will end with The conflict in Kazakhstan may have spillover effects, which may affect the region’s major oil producers; the second concern is: how will this prospect affect global crude oil supplies? Against this background, uncertainty remains high , which may continue to push up oil prices.”
Ordinary people are worried about the impact of high crude oil prices on gasoline prices. In the West, it usually only takes four weeks for a rise in crude oil prices to be transmitted to a rise in gasoline prices.
There are various signs that the conflict between Israel and Kazakhstan may affect other countries in the Middle East. On October 16, Iranian Foreign Minister Hussein Amir-Abdullahyan said in a live broadcast on national television: “It is expected that the Resistance Front may take preemptive actions in the next few hours.” He specifically mentioned 10 Meeting with the leader of Lebanese Hezbollah on March 14.
Abdullahiyan said that the leaders of the “resistance movement” will not allow Israel to do whatever it wants in Gaza.
These statements by Iran have deepened the international community’s concerns about more countries in the region being involved in the Israel-Kazakhstan conflict. Iran is one of the major oil-producing countries. If Iran is involved in the Israel-Kazakhstan conflict, it is likely to trigger a stricter U.S. embargo on Iranian oil exports and even lead to U.S. military intervention. Once this happens, the global oil market will suffer a greater impact.
U.S. President Biden visited Israel on October 18, trying to find a balance between supporting Israel in its fight against Hamas and preventing the Israel-Kazakhstan conflict from evolving into a larger-scale regional war.
Energy traders around the world are now anxiously waiting and watching whether Biden’s efforts will be successful, which has also led to fluctuations in crude oil prices.
Multinational oil giants “making war profits”?
However, some analysts pointed out that there are also several factors that indicate that the impact of the Israel-Kazakhstan conflict on oil prices may be short-lived. These factors include: 1. Although the Iranian Ministry of Foreign Affairs clearly expressed support for Hamas’s actions, calling it
a This was an act of self-defense, but both Iran and Hamas later repeatedly denied Iran’s involvement in planning the attack. It may also be difficult for the United States to impose a stricter embargo on Iranian oil exports on the grounds that Iran is “behind” the Hamas attack, although the United States could sanction or even militarily strike Iran for future involvement in this conflict.
2. As predicted by the International Energy Agency, the global oil market will maintain a tightrope-like balance of supply and demand for a period of time. Therefore, it is difficult for the United States to maintain a strict embargo on the oil exports of Russia and Iran at the same time, especially in As the United States is about to enter the 2024 presidential election campaign, for Biden, high oil prices and high inflation mean huge political risks.
3. The Venezuelan government and opposition will resume long-stalled negotiations, which may lead to the U.S. government relaxing sanctions on Venezuelan oil exports.
4. Amin Nasser, CEO of Saudi Aramco, the world’s largest oil company, said on October 17 that the company can increase oil production within a few weeks if necessary. He said global oil demand is expected to increase to 103 million barrels per day in the second half of 2023, while the company’s spare capacity currently stands at 3 million barrels per day.
However, these factors did not reassure other analysts.
For example, according to Phil Flynn, an analyst at Price Futures Group, a brokerage firm in Chicago, Amin Nasser’s words made him anxious: “Even if OPEC increases production, it can only increase production by 3 million barrels per day at most. . This is a worrying number. The oil market is so tight right now, no wonder we are restless every day.”
In order to keep oil prices high, both Saudi Arabia and Russia have taken preemptive moves to cut oil exports. On October 4, 2023, the two major oil-producing countries of OPEC+ reiterated their decision to maintain production cuts.
Shell is a natural beneficiary of Saudi Arabia and Russia’s decision to maintain production cuts. Since October 4, Shell shares have risen nearly 10% to 183 billion pounds. In the past three years, the oil giant’s stock price has tripled. There are many reasons for this, but it cannot be denied that the biggest driver is the two violent conflicts: the Russia-Ukraine conflict and the Israel-Kazakhstan conflict.
The situation is similar for other multinational oil majors. No wonder some people criticize multinational oil giants for “making war profits.”
