Jan 18, 2024 - Economy

Oil markets shrug off continuing Mideast violence

Data: Energy Information Administration, FactSet; Chart: Axios Visuals
Data: Energy Information Administration, FactSet; Chart: Axios Visuals

Oil prices have fallen, despite escalating Mideast violence.

Why it matters: Since at least the Yom Kippur War of 1973 — and the Arab nations' oil embargo that followed — the region's regular episodes of violence and political volatility have often generated spikes in oil prices.

  • Yes, but: Both U.S. and global benchmark crude oil prices are down by more than 10% since Hamas terrorists attacked Israel on Oct. 7, 2023, setting off a new cycle of fighting.

The big picture: For the U.S., the market's response reflects the fact that it has drastically reduced its reliance on oil and petroleum products from OPEC, much of which comes from the politically volatile region.

  • In the late 1970s, roughly 70% of U.S. imported oil came from OPEC. That was down to about 15% at the end of 2022.

Between the lines: OPEC, a group of 12 oil producers, includes countries that the U.S. has historically had unpleasant relationships with — like Iran and Libya — as well historical allies, such as Saudi Arabia, where relationships have also turned somewhat sour recently.

  • OPEC has allied with perhaps the U.S.'s top adversary, Russia, whose exports have been petroleum non grata for much of the West since it attacked Ukraine in 2022.

Be smart: OPEC's loss in the U.S. has been the gain of producers such as Canada, Brazil and Guyana, which have increased exports to the U.S., as well as American oil companies, who have ratcheted up production to record levels recently.

  • Meanwhile: Outside the U.S., the drop in global oil prices — with the U.K.'s Brent crude as the main gauge — reflects weakness in demand, as economic struggles in Europe and China have reduced energy consumption.

What they're saying: "The latest escalation in Middle East tensions has not prompted a surge in oil prices," wrote analysts at Capital Economics this week. "We think this is because, so far, oil output is unaffected. Moreover, we suspect it also reflects concerns about weak demand, strong supply growth elsewhere and a market view that a wider conflict is unlikely."

The bottom line: Amid Houthi attacks in the Red Sea, the U.S. military responding in Yemen, Iran striking Iraq, and Israel continuing to prosecute the war in Gaza, oil prices look downright placid.

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