Tensions in the Middle East have a direct impact on energy markets, particularly when it comes to oil prices. With recent attacks by Iran on Israel, there is an increased risk of higher oil prices. The response from Israel and the USA to these attacks remains uncertain, but both countries have signaled attempts to de-escalate the situation. Despite initial unimpressed oil markets on Monday morning, with the price of North Sea Brent oil slipping below $90 per barrel, potential risks still pose a high threat in the region.
The Iranian attack was not unexpected as Tehran had announced it in advance, causing the oil price to already reflect this risk. While the oil supply has not been significantly disrupted, there is still a possibility of military escalation or narrowing of supply that could impact global markets. The US may consider stricter sanctions against Iran, which could affect global oil supply.
OPEC+ and Saudi Arabia are key players in regulating oil supply and prices, and geopolitical tensions underscore the importance of security of supply. However, global oil demand is weakening, and increased production from countries outside of OPEC+ like the USA, Canada, Brazil, and Guyana may help mitigate any supply disruptions in the short term. While there may be some impact on inflation, for now, it is not significant enough to warrant immediate action from central banks.
