The impact of the Middle East situation on the oil industry

Middle Eastern countries have the world’s richest oil reserves, accounting for nearly half of the world’s proven reserves. According to the data, by the end of 2021, the remaining recoverable reserves of oil and gas in the Middle East were 113.2 billion tons and 75.8 trillion cubic meters, accounting for 48.3% and 40.3% of the global total, respectively. Among them, Saudi Arabia, Iran, Iraq, Kuwait, the United Arab Emirates and other countries are the largest oil reserves in the Middle East, but also the world’s top ten oil reserves.

Middle Eastern countries are also the world’s largest producers of oil, accounting for nearly a third of global production. According to the data, in 2021, oil and gas production in the Middle East reached 1.316 billion tons and 714.9 billion cubic meters, respectively, accounting for 31.2% and 17.7% of the global total. Among them, Saudi Arabia, Iraq, the United Arab Emirates, Iran and other countries are the largest oil production countries in the Middle East, and also the top ten countries in global oil production.

International oil prices fell on the October 11th, closing at $83.49 per barrel in New York. International oil prices fell after a continuous rise, mainly affected by the increase in US crude oil inventories, the strengthening of the US dollar, China’s energy supply improvement and other factors. Analysts believe that international oil prices are still facing uncertainties such as supply-demand imbalance, geopolitical risks, and changes in the novel coronavirus epidemic, and it is expected that the volatility will increase in the future.

Middle Eastern countries also have a huge influence on the international oil market, mainly by controlling supply, adjusting prices, and playing an organizational role. The Middle East is the world’s largest oil export market, with annual oil exports of about 1 billion tons in recent years. The Middle East is mainly exported to Asia and Europe and plays an important role in the energy security and economic development of these regions. The Middle East is also a high ground for international cooperation in global energy, with almost all global oil majors, international national oil companies and independent oil companies participating in investment operations, trade and engineering services in the Middle East. The Middle East is also home to the world’s most influential oil organization, OPEC, which consists of 14 member countries, 11 of which are from the Middle East. By setting production quotas, adjusting export tariffs and coordinating production cuts, OPEC has an important impact on international oil prices and market supply and demand.

Recently, the geopolitical situation in the Middle East has seen some tensions and turbulence, which has had a certain impact on the oil market. There are mainly the following aspects:

• Israeli-Palestinian conflict: On October 9, Israel and the Palestinians broke out in their largest conflict in nearly two decades, which has so far resulted in thousands of casualties and terrible fighting. Affected by the escalation of the Palestinian-Israeli conflict, crude oil and gold surged under risk aversion, and Middle East stock markets plunged. However, some analysts believe that under the current supply and demand pattern of abundant oil inventories and spare capacity, geopolitical tensions will not keep oil prices at a sustained high level.

• Iran nuclear: U.S. and Iranian talks on reviving the 2015 Iran nuclear deal have stalled, with both sides accusing each other of insincerity. The United States continues to impose tough economic sanctions on Iran, restricting its oil exports. Iran has accelerated its nuclear program and threatened to close the Strait of Hormuz, through which about a fifth of the world’s oil is transported.

• Security concerns in Saudi Arabia: Saudi Arabia is the world’s largest oil exporter and one of the most stable countries in the Middle East. But in recent years, Saudi Arabia has also come under repeated attacks from the Houthis, Islamic State and other groups, threatening its oil facilities and energy security. On March 7, Saudi Arabia’s oil town of Ras Stanura was attacked by Houthi drones and ballistic missiles, causing oil storage tanks to catch fire and disrupting oil supplies. It was one of the worst attacks on Saudi oil facilities in recent years and a sign of the escalating conflict between the Houthis and Saudi Arabia. The incident triggered a sharp rise in international oil prices, with Brent crude futures briefly rising more than 4% to $71 a barrel. Saudi Arabia has stepped up its defense measures and is working closely with Allies such as the United States.