The Volatile Oil Market Is Bigger than Just the Middle East

Kuwaiti firefighters fight to secure a burning oil well in the Rumaila oilfields. Wikimedia Commons/U.S. Marine Corps

In the past, risk measurably increased when things got tense near the oil fields of the Middle East. Today, the world’s energy supply and consumption patterns are more complex.

On Friday April 7, a day after the U.S. missile strike against Syria, the global oil price did something it hadn’t done in months: it shot way, way up. By Monday morning, the West Texas Index, one of two major global benchmarks, had gone up by $2 to $53 per barrel, the biggest price increase since December 2016.

Analysts and commentators jumped at the chance to proclaim it: geopolitical risk in the oil market was back. All of a sudden, a few missiles launched from the decks of two American destroyers could do what OPEC bargaining and the shale revolution had failed to do: set the global oil price firmly north of $50. Oil was exposed, once again, to the mysterious “risk premium,” sending prices up from the historic lows that have mired the global oil-and-gas industry since June 2014, when global crude prices were still sitting above $100 a barrel.

Within a week, it grew apparent that the sudden price spike was a flash-in-the-pan, momentary jump. Prices responded to an unexpected action by a U.S. president still searching for a coherent approach to the Syrian debacle. But the sudden uptick in oil prices in the wake of Trump’s Syrian intervention has reopened the debate on how geopolitical events affect the international economy.

In early June, when Qatar was suddenly and unexpectedly isolated diplomatically and economically by the rest of the Persian Gulf—with American support—the question of how energy markets would respond was reopened. But this time, there was no spike. Growing instability near the Strait of Hormuz, through which a third of all globally-traded oil passes each day, elicited no more than a shrug from the markets. The geopolitical risk from this incident, unlike the Syrian missile strike, wasn’t enough to arrest a downward slip in oil prices.

Oil is seen as particularly sensitive to sudden shifts in geopolitical climate, and there is considerable discussion surrounding the geopolitics of oil.  But while the movement of energy resources from country to country, via pipeline or tanker, is very often influenced by political interests (the relationship between Russia and Western Europe offers a clear example), the relationship between petroleum prices and political events, be they wars, missile strikes, revolutions or sudden coups d’etat, has never been clear-cut.