There has been a sudden big upswing in the crude oil market. Crude oil, which was scaring the world by crossing $100 per barrel just fifteen days ago, fell sharply to $88 on Monday. This huge fall of 9% in a single day is a big relief news for the stock market and the common man who is struggling with inflation. After all, how did this game turn? The biggest reason for this is the looming clouds of war between America and Iran. America has stopped its military attacks on Iran and Tehran has also made it clear that it will not retaliate now.
How was the US-Iran dispute resolved?
For the last two weeks, America was continuously attacking Iranian targets. But on Friday the US Army suddenly applied the brakes. Diplomats believe that both the countries have taken this step to give some ‘space’ to the talks. China and Pakistan are being said to have a big role behind this entire diplomatic reconciliation. According to Reuters report, China is suffering huge economic losses due to the continuous attacks in the Gulf countries and the closure of the world’s most important oil route ‘Strait of Hormuz’. Therefore, Beijing has put pressure on Pakistan to restart the stalled peace talks between America and Iran.
Pakistan trapped in diplomatic chess
It is not so easy for Pakistan to do this mediation, because its situation has become ‘well in front, ditch behind’. On one hand, Iran-backed Houthi rebels of Yemen have imposed a maritime blockade against Saudi Arabia. Pakistan had signed a defense agreement with Saudi only last year and is heavily dependent on Riyadh for financial help. If Islamabad shows even a little softness towards Iran, Saudi Arabia may get enraged. On the other hand, China has huge debt and pressure on Pakistan. China wants the trade routes to the Middle East to open soon, for which Pakistan will have to become an important link in this entire matter.
Danger is not over yet, silence on sea routes
Even though both the countries have stopped the attacks, it does not mean that the situation has become completely normal. The movement of ships is still at a standstill. According to shipping data company Kpler, the Strait of Hormuz, through which 20% of the world’s oil passes, saw less than 10 ships over the weekend. Same is the situation in the Bab al-Mandeb Strait near the Red Sea coast, where there is silence due to the fear of Houthi rebels. However, Oman has meanwhile emerged as a trouble-shooter. A delegation from Oman is in continuous talks with Iran to make these routes safe again for ships.
Will crude oil become cheaper or will prices increase?
Now the biggest question is what will happen next for the common man? Market experts say that until the supply chain is completely restored, oil prices will remain under threat. JP Morgan’s report says that if there is another month’s interruption in oil supply, crude will become costlier by $7 to $8. If the road remains closed for 3 months, the price can go up to $ 114 per barrel.
Veteran firm Goldman Sachs has also warned that prices may touch $120 if the road remains closed. However, he estimates that if the environment calms down, the rates may come down to $80 by the end of the year and $75 next year. Anindya Banerjee, Head of Commodity Research, Kotak Securities, also believes that the market is now keeping an eye only on diplomatic decisions. If there is a new attack on any major oil infrastructure of the Gulf, then crude oil may again cross the level of 95 to 100 dollars.
