The price of oil has risen sharply, and natural gas is rising rapidly, especially in Europe compared to other world markets. Meanwhile, the impact on stock markets has been severe, although not catastrophic. The exceptions are the markets of the two major oil producers outside the Middle East: Russia and Canada.
Financial markets are reacting in recent hours to Israel’s attacks on Iran exactly as predicted. The price of oil has risen sharply, and natural gas is rising rapidly, especially in Europe compared to other world markets. Meanwhile, the impact on stock markets has been severe, although not catastrophic. The exceptions are the markets of the two major oil producers outside the Middle East: Russia and Canada.
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Iran currently produces about 3,3 million barrels of oil per day (mostly purchased from China through “shadow fleets” that evade sanctions), out of a global consumption of about 104 million barrels. With about 3% of world supply at risk, although it is unlikely that Iranian production will fall below half of current levels, it is understandable that oil prices have exploded this morning. Brent crude rose 8.8%, reaching $75.5 per barrel. However, amid concerns about the international situation, American shale oil producers, who often have production costs above $50 per barrel and have been struggling, are now breathing easier.
THE IMPACT OF TRUMP’S TARIFFS
It should be remembered that the price of oil, although it has increased significantly today, is not at very high levels: it is still below the $82 per barrel of a year ago. So it is not currently driving a significant increase in annual inflation and has simply recovered to the level of January 30. The trade war caused by Donald Trump had reduced the price of oil since “Liberation Day” in early April, with the announcement of reciprocal tariffs.
Perhaps for this reason, world stock markets are suffering losses, but without dramatic declines: the FTSE MIB index in Milan has decreased by 1,75% at noon, the DAX in Frankfurt has suffered a somewhat smaller decline, while the S&P500 index futures markets on Wall Street predict a decline of just over 1% during the afternoon in Europe.
STRAIT OF HORMUZ
Much will depend on developments in the coming days and on Iran’s military response. If the crisis spirals out of control, the worst-case scenario for the world economy would be a blockade by Tehran of the Strait of Hormuz. In this case, still hypothetical, Saudi Arabia could still export at least 5 million barrels per day, just under half of its production capacity, through the east-west pipeline that connects it directly to the Red Sea and the Suez Canal. The United Arab Emirates could also continue to export some of its production. The hardest hit would be Qatar, which is forced to ship all of its liquefied natural gas through the Strait of Hormuz.
NATURAL GAS
It is no coincidence that the price of natural gas in Europe has increased by 5,2% today, precisely because a significant part of Qatari gas supplies the European market (although at the moment it has only reached the level of “Liberation Day” in April, when Trump announced the reciprocal tariffs). Meanwhile, the international price of gas has increased by only 1,5%, as it is supplied mainly by American production.
Meanwhile, safe-haven assets such as gold (up 1,1%, very close to historical highs) and the US dollar (up 0,6%, although it had lost 8% in six months) are strengthening compared to an average of major world currencies.
RUSSIA’S BENEFITS
Overall, from a market perspective and in the very short term, someone is benefiting from this crisis. The first actor to benefit immediately is Russia. It is likely that Trump will now be even more opposed to tightening sanctions on Russian oil at the upcoming G7 summit, as the US president will not want a further increase in oil prices.
The second beneficiary is American companies, especially those in Texas, which now enjoy prices that make their products profitable again. And their return to the market could help, for the time being, to curb further oil price increases.
