Israel’s sudden assault on Israel on Saturday, the day before the 50th celebration of the 1973 Arab-Israeli War, caused the world oil prices to soar.
After the United States provided financial support to Israel in the Arab-Israeli War, the world crude cost nearly quadrupled up next between late 1973 and early 1974.
Oil exports to countries like the US, the United Kingdom, Canada, and Japan were halted by the Organization of Arab Petroleum Exporting Countries( OPEC ).
Had it occur once more? The answer is almost definitely no, despite the adage that past doesn’t duplicate but it rhymes. While there are strange parallels between the activities of 1973 and the present, these distinctions are more significant.
This day, things are different.
Israel faced off against two oil-producing countries in the 1973 conflict: Egypt and Syria.
The Organization of Arab Petroleum Exporting Countries imposed an oil embargo after the US offered assistance to Israel, followed by a string of manufacturing reductions that raised the price of crude globally.
Israel and Hamas, the Islamist organization in charge of the little Gaza Strip, which is bordered by Israel, Egypt, and the Mediterranean Sea, are at battle in 2023.
Israel and Gaza neither produce a lot of fuel.
Cost growth has been temporary.
It’s probable that Iran, a country rich in oil, will take part in the fight. Although its Supreme Leader, Ayatollah Ali Khamenei, has denied Iran’s role, it is rumored to have assisted in the planning of the Hamas harm.
Additionally, it’s possible that oil-exporting countries will reduce items in a show of support for Hamas.
However, there is currently no reason to think that this will occur, and the price of crude hasn’t changed all that much.
Brent crude‘s rate increased by 15 % from about US$ 95 per chamber to US$ 110 when Russia invaded Ukraine in 2022.
Russia had been the third-largest oil producer in the world, producing approximately 10 % of the global supply.
The Brent simplistic value, in contrast, ended on Friday( prior to the Hamas attack ) at about US$ 84. On Monday, it increased to$ 88 before falling back, falling far below even the$ 94 peak from the previous month.
Why was there even a slight raise?
Not every increase in oil prices is brought on by a source issue.
My analysis demonstrates how changes in demand can also be significant. These fall under the categories of” speculative demand” and” precautionary demand.”
The need for more oil to keep in reserve in case supply becomes scarce is referred to as cautionary demand. Investors who anticipate profiting from more rate increases are the source of speculative demand. Both increase the price of fuel.
The good news is that, barring an unforeseen event, both effects ought to be fairly transient. The results of this situation have been minimal thus far.
Jamie Cross teaches figures and entometrics as an assistant professor at Melbourne Business School.
Under a Creative Commons license, this essay has been republished from The Conversation. read the article in its entirety.