Oil Embargo Looming as Iran takes a stand in the Israel-Hamas Conflict

by | Nov 8, 2023 | Iran, Israel, News, Oil Prices

This echoes the 1973 oil embargo, which resulted in significant repercussions for oil prices, Western economies, and global political alliances for many years.

Iran has urged OPEC members to halt oil exports to countries supporting Israel.

The call for an oil embargo is a response to the Israel-Hamas conflict, with the potential to significantly disrupt global oil supply and prices.

Iran’s Supreme Leader, Ali Khamenei, recently urged Islamic OPEC members to cease oil exports to Israel. Despite the fact that Israel primarily sources its oil from non-OPEC members such as Azerbaijan, the United States, Brazil, Nigeria, and Angola, this call may appear somewhat unusual on the surface.

However, the real concern lies in Iran’s push for a comprehensive oil embargo from all Islamic OPEC member states against countries supporting Israel in its conflict with the Islamic militant group Hamas. This strategy resembles what Saudi Arabia did in 1973 during a similar conflict between Israel and Islamic nations, resulting in significant repercussions for oil prices, Western economies, and global geopolitical alliances for many years.

What would this mean for the oil industry?

Now, let’s consider the potential implications of a broader oil embargo. According to the most recent analysis from the World Bank, a reduction in global crude oil supply ranging from 6-8 million barrels per day (bpd), described as a “significant disruption” akin to the 1973 Oil Crisis.

This could potentially result in would result in a notable 56-75 percent price increase, with oil reaching between $140 and $157 per barrel.

However, should the Islamic members of OPEC heed Iran’s call to expand the embargo beyond Israel, the actual impact on global oil supplies could surpass the World Bank’s estimations. Islamic OPEC member states, including Algeria (with an average crude oil production of approximately 1 million bpd), Iran (3.4 million bpd), Iraq (4.1 million bpd), Kuwait (2.5 million bpd), Libya (1.2 million bpd), Saudi Arabia (9 million bpd), and the UAE (2.9 million bpd), collectively account for slightly over 24 million bpd – roughly 30 percent of the current global production averaging around 80 million bpd.

What lessons were learned from the 1973 embargo that are relevant to the Israel-Hamas conflict?

The 1973 oil embargo, often referred to as the “Oil Crisis” or the “Arab Oil Embargo,” was a pivotal event in the history of global energy markets and geopolitics. Several important lessons were learned from this crisis:

Energy Security Awareness:

The 1973 oil embargo heightened awareness of the importance of energy security for oil-importing nations. Countries recognized their vulnerability to supply disruptions and began developing strategies to reduce their dependence on foreign oil sources.

Strategic Petroleum Reserves:

Several countries established strategic petroleum reserves to buffer against future supply disruptions. These reserves serve as a safety net to stabilize energy markets during emergencies.

Geopolitical Complexities:

The 1973 oil embargo highlighted the geopolitical complexities of energy trade, demonstrating how conflicts in one part of the world can impact energy supplies and prices globally. This awareness influenced foreign policies and international relations, emphasizing the need for diplomatic solutions to energy-related disputes.

OPEC’s Power and Influence:

The embargo showcased the collective power of the Organization of the Petroleum Exporting Countries (OPEC) to influence global oil markets. OPEC’s ability to manipulate oil prices and supplies during the crisis underscored the significance of these oil-producing nations.

Economic Impacts:

The oil price shock resulting from the embargo had severe economic consequences, particularly for Western countries heavily dependent on oil imports. It led to inflation, recession, and economic instability, prompting policymakers to consider the broader economic impacts of energy policies.

Political Realignment:

The geopolitical and economic repercussions of the 1973 oil embargo led to political realignments and shifts in alliances. Some countries sought to reduce their vulnerability by forging closer ties with oil-producing nations.

Long-Term Energy Planning:

The crisis prompted many countries to develop long-term energy plans and policies that considered both domestic production and energy security concerns. These policies aimed to balance energy needs with environmental and security considerations.

1973 Wake-Up Call

Overall, the 1973 oil embargo served as a wake-up call for many nations, emphasizing the need to adopt a more comprehensive and forward-thinking approach to energy security and policy. The lessons learned from this crisis continue to influence energy strategies and international relations to this day.

Sources:

OilPrice.com. (2023, November 6). Iran’s Proposed Embargo Could Cause Chaos In Oil Markets.
https://oilprice.com/Energy/Crude-Oil/Irans-Proposed-Embargo-Could-Cause-Chaos-In-Oil-Markets.html

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