Do you know why the price of world crude oil is soaring, even though the war between Iran and Israel is getting more tense by the day?
Today is the seventh day of this armed conflict, and attacks after attacks continue to shake the Middle East.
But have you ever wondered, how can oil prices rise so high and even reach their highest level since 2022 in the midst of such chaos?
Two main factors are seen to have contributed to this situation.
Iran: A Major Player in the Oil World
When it comes to oil, Iran is not a country that is just a pawn. It is an influential member of the Organization of the Petroleum Exporting Countries (OPEC), which is an international cartel that brings together the world's major oil producing countries such as Saudi Arabia, Iraq, and the UAE.
OPEC's purpose is simple: to maintain the stability of world oil prices.
If too much oil is supplied, prices fall and if supply is reduced, prices rise.
That's why Iran's role is so big after they produce more than 3 million barrels a day.
Now, with Iran under attack and in a critical situation, investors are starting to panic.
Imagine if half of that production was disrupted, such as a damaged plant, a closed port, or sanctions. Global markets continue to be in turmoil.
Worse, this uncertainty has a domino effect on investor confidence. In the world of investment, uncertainty is the main enemy. When risk increases, prices also increase.
Strait of Hormuz: The World's Oil Route Under Threat
If Iran has a superpower in the form of oil, the Strait of Hormuz is their 'nuclear button'.
This strait is only narrow on the map, located between Iran and Oman, but don't underestimate it!
Almost 20% of global oil is shipped through here every day because it is an important route for countries such as Saudi Arabia, the UAE, Kuwait and Iraq.
Now, after Israel's retaliatory attacks on targets in Tehran, rumors have emerged that Iran may close or disrupt shipping routes in the Strait of Hormuz.
Although it has not yet officially happened, this speculation alone is enough to make the global market 'throb'.
Why?
Because if the Strait of Hormuz is closed, tankers cannot enter and exit. Supply is blocked. Demand is still high. So the price of oil soars.
With the Israeli-Iranian conflict still ongoing, the price of Brent crude oil continues to soar, exceeding $110 per barrel, the highest level in the past three years.
Now, the world is waiting, will this conflict continue to escalate?
Or will there be a diplomatic effort that can ease tensions?
Whatever happens, one thing is certain when oil is used as a strategic weapon, the whole world will feel the pinch.
