Oil: Under the spell of geopolitics – Commerzbank

The Brent Oil price has risen to a 5-month high of $79 per barrel due to a further escalation of the military conflict between Israel and Iran, which has been ongoing for a week, Commerzbank's commodity analyst Carsten Fritsch notes.

Risk of supply disruptions on the Oil market

"Oil prices are likely to continue to be determined by news on the Middle East conflict in the coming week. If this escalates, possibly with the United States intervening alongside Israel, Oil prices would rise further. US President Trump wants to make a decision on this within two weeks. This would increase the risk of supply disruptions on the Oil market. The Strait of Hormuz, through which around a fifth of the global Oil supply is transported every day, is at the centre of attention."

"As this volume could not be transported to the world market via other routes such as pipelines in the event of a blockade by Iran, the Oil market would tighten considerably. A higher risk premium on the Oil price is therefore justified, even if the probability of the Strait of Hormuz being closed is very low. After all, this would harm Iran itself considerably, as it would also no longer be able to export Oil and would also offend China, its most important customer."

"This is because China obtains the majority of its Oil imports from countries in the Persian Gulf and would therefore be particularly affected by a blockade of the strait. Should Iran no longer be able to export its Oil, the reluctance threshold for a blockade would sink. The same is likely to apply in the event of an imminent loss of power by the regime in Tehran."