Will the Israel-Palestine Conflict shatter the dream of a Rs.41 per litre reduction in petrol for Pakistanis?
Historical Context
Two historical events, one from the distant past and another from the recent past, caused a spike in international oil prices. Will the latest Middle East conflict have a similar effect?
1973 Oil Crisis
In 1973, a group of Arab countries, major oil producers, launched a surprise attack on Israel. Due to US support for Israel, Arab nations reduced oil production and imposed embargoes on the US and its allies. This caused oil prices to increase fourfold in the months that followed.
2022 Ukraine Conflict
In 2022, Russia, a major oil producer, attempted to invade Ukraine. This ongoing conflict has led to a spike in international oil prices, with its effects reaching as far as Pakistan.
Current Conflict in the Middle East
Now, the Middle East, home to some of the world’s largest crude oil reserves, is in the midst of a major conflict. Considering the history of military conflicts and their effects on oil prices, should we expect more expensive petrol in Pakistan soon?
Immediate Short-Term Impact
For the time being, it is an evolving conflict and confined to two entities – Israel and Gaza. Both of these entities do not produce oil and are also not the biggest consumers of oil. Hence, it can be said that in the immediate short-term, this conflict should not spike international oil prices.
Market Response
However, there is a caveat. As soon as this conflict started, there was a spike in global oil prices, with Brent Crude rising 4.2% to $88.15 a barrel and West Texas Intermediate increasing by 4.3% to $86.38 per barrel on Monday. However, prices have now eased slightly, dropping 36 cents for Brent Crude and 35 cents for West Texas Intermediate. This was largely due to markets acting jittery, which they always do whenever there is an armed conflict.
Potential for Ongoing Impact
However, this doesn’t mean that the present conflict cannot make you pay more than Rs.323 per litre at your local petrol pump. Despite the fact that neither Israel nor Gaza are major oil producers, concerns about potential regional instability have unsettled markets for the following reasons.
Iran and Hezbollah Considerations
Two important factors to monitor in this conflict are the potential involvement of Iran and Hezbollah. Iran denies involvement in the recent Hamas attack on Israel. The U.S. and Israel haven’t found evidence of Iranian involvement, but if such evidence were discovered, it could disrupt ongoing negotiations and lead to more U.S. sanctions on Iranian energy, raising international oil prices. If this conflict spreads and escalates, experts suggest that oil prices could increase by $5 to $10 per barrel if Iran gets involved, but some doubt that direct military engagement between Israel and Iran will occur.
Slim Chances of Escalation
As reported, Iran has denied any involvement, and both Israel and the US lack evidence to implicate Iran, the chances of this conflict spreading beyond its present borders is slim. If it remains this way, the international oil prices will remain steady, leaving Pakistani motorists at the mercy of international oil prices and the US-Rupee parity.
Conclusion
To answer the questions posed in the beginning of this blog, the immediate, short-term effects of the conflict on international oil prices will be limited. Oil prices will remain largely where they were before this conflict started. Although a reduction of Rs.41 per litre is a bit far-fetched in our opinion.
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