Whenever the tinder-dry political situation in the Middle East catches fire, the first thing you look at is the price of oil. Between 25% and 30% of the world’s oil comes from that region. It holds the largest share of the world’s proven reserves, and the Strait of Hormuz shipping lane, where many tankers pass through, is so tight that a small military force could shut it down completely.
And any increase in oil prices, due to scarcity or diminished production, would have unfortunate ripple effects throughout the world economy, and potentially on stock prices.
So what are we seeing while Israel and Iran trade missiles and march ever-closer to a regional war?
So far, both Iran and Israel seem to be avoiding attacks on each others’ oil refineries; this is especially important for Iran, which is by far the larger contributor to the global oil market. Oil prices initially rose about 7% worldwide, mainly on fears of what might happen rather than based on any shortages. Prices subsequently fell 1.4% based on more reassuring facts on the ground.
The bet among oil traders seems to be that the Israel-Iran conflict will remain limited—but of course there are no guarantees. Both sides have more to lose than to gain from an all-out war, but isn’t that true of all wars in modern history?
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