The war raging in the Middle East and the deepening tension around Iran have shaken the foundation of the international energy market. Crude oil prices are rising at rocket speed and crossing the dangerous level of $115 per barrel. When international crude oil prices become so uncontrolled, a new phase of inflation begins all over the world. Due to cost of freight transportation, the prices of every item of daily use increases, the ultimate burden of which falls on the pockets of the general public.
Strait of Hormuz closed
The Strait of Hormuz is not just a narrow passage of sea water, but it is the lifeline of the global economy. About 20 percent of the total oil used worldwide passes through this route. The latest situation arising out of the Iran war has almost closed this important waterway. Due to the fear of possible attacks, big tanker companies and ship owners are not able to muster the courage to remove their ships from this area. Stoppage of transportation directly means huge shortage of oil in the international market. When the supply chain is disrupted in this way, prices automatically skyrocket due to reduced availability.
Biggest surge since 1983
Market data clearly shows the seriousness of this crisis. There has been a huge jump of 28 percent in the prices of American West Texas Intermediate (WTI) crude oil and it has reached close to $ 116 per barrel. At the same time, Brent crude is also not far behind; An increase of 26 percent has been registered in it and it is also trading at around $ 117 per barrel. The most surprising thing is that last week an increase of 35 percent was seen in American crude oil. This is the biggest gain recorded in a week in the history of the futures market since 1983. Energy experts believe that if the Hormuz route is not restored soon, this crisis may take a severe form.
drastic cuts in production
The crisis is not only in transportation, but the situation is getting worse at the production level also. Sensing the danger, the major oil producing countries of the Gulf region have started retreating.
- Kuwait: In view of threats from Iran regarding the safe movement of ships, Kuwait has cut down its oil production and refinery activities as a precaution.
- Iraq: The situation here is even more worrying. Production from the southern oil fields, which was 4.3 million barrels per day before the war, has now fallen to just 1.3 million barrels per day. This is a huge and dangerous decline of about 70 percent.
- United Arab Emirates (UAE): In view of the pressure on reserves, UAE has also decided to manage its offshore production with utmost care.
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