Oil and the Middle East

Tensions have risen in the Middle East since last week’s oil tanker incident. On Thursday, two tankers were attacked in the Gulf of Oman, just outside the Strait of Hormuz, which is an important waterway for a large portion of the world’s oil supply carried by tanker. About 20% of the world’s oil demand travels through this strait.

Unsurprisingly, the US quickly pointed the finger at Iran as being responsible for the attack on the two tankers. Meanwhile, Iran’s government denies any involvement. The US did present video evidence which it says shows the Iranian military recovering a mine that failed to go off from the hull of the tanker.  However, Yutaka Katada, the Japanese owner of the oil tanker does not believe that any object was placed on the hull. He has said that his tanker was hit by a flying object, which was the information given to him by the ship’s crew.

The US, especially under the current president, has had a recent history of taking a hard stance against Iran. This was seen in the abandonment of the nuclear pact by US president Donald Trump and the increase in sanctions. They have clear interests in blaming Iran for issues such as this since the US and Saudi Arabia have an alliance based mostly on the trade of oil and arms. Meanwhile, Saudi Arabia and Iran have been engaged in an ongoing conflict for about 40 years, since the Iranian Revolution. Still, Saudi Arabia along with other rivals of Iran in the Middle East have been more careful and have not outright blamed Iran for the attacks.

The effects of these attacks will not only be felt by Mr. Yutaka Katada himself. All shipowners are likely to face higher insurance costs now that the Strait of Hormuz seems to have become a riskier route. Also, should those in the industry decide that the costs become too high or deem the waterway too dangerous to pass through, this could have consequences for the supply and price of oil around the world.

The crude oil price was affected shortly after the attacks on Thursday as they rose by about 4%. However, prices quickly lowered back down. So, the attacks do not seem to have had lasting effects on oil prices so far. However, numerous events on a global scale, including development in Iran’s uranium production, may add to the tensions in the Middle East and the US. The effects these developments are still unclear. However, one possible outcome is the tightening of sanctions by the US on Iran which could reduce the latter country’s exports. In any case, these attacks in the Gulf of Oman and the reactions by countries in and outside the region will have international consequences.

Written by Hazel Alberts