Iran and Israel: conflict and its consequences
The aggravation in the Middle East including the mutual response attacks of Israel and Iran might inevitably affect the growth of oil prices. Kazinform News Agency presents its view on the situation in the Middle East and its consequences for oil prices with influence on the national currency of Kazakhstan.
The Israeli missile attack on the Iranian consulate building in Syria on April 1 resulted in a counter-strike by Iranian forces against Israel on the night of April 14. The armed forces of Iran fired 185 unmanned aerial vehicles (UAVs), 110 surface-to-surface cruise missiles and 36 ballistic missiles. Tehran called it a response to a missile strike on its diplomatic premise where seven people were killed, including two high-ranking military officers.
Meanwhile, a cargo ship possibly affiliated with Israel was seized in the Strait of Hormuz. Moreover, in the Red Sea ships affiliated with Tel Aviv and Western countries were attacked by the Yemeni Houthi group. Referring to Washington claims, the Houthis have recently launched more than 90 missile and kamikaze drone attacks on merchant ships and directly on the U.S. Navy ships in the Gulf of Aden alone.
The escalation of attacks on maritime transportation has affected global economy since the Red Sea is a critical region for maritime trade and especially energy transportation. Reduction of trade turnover is seen due to the increasing cost of transporting containers through the Red Sea and Yemeni Houthis’ shell of merchant ships in retaliation to Israeli actions in the Gaza Strip. Although the U.S. Navy and European allies are concentrated in the Red Sea, there is no serious results against the Houthis.
Crude supplies through the Strait of Hormuz account for about a fifth of the world's oil supply. This might create a tangible excitement around oil prices. Unstable oil supplies through the Strait of Hormuz may create a rise in prices, shortages and increased demand in the petrochemical industry. Geopolitical tensions are gradually forming around the entire Arabian Peninsula.
The high level of conflicts escalation already resulted in increase of the world oil prices to $90.5 per barrel on April 12 (+0.8%). Oil prices are expected to exceed $100 per barrel if Israel strikes Iranian oil facilities. Economists consider that short-term jumps of oil prices will not affect noticeably in Kazakhstan.
As Bank of America forecasts, the cost of Brent oil might reach $130 per barrel in the second quarter of 2024. Possibility of a months-long war between Israel and Iran might lead to disruptions in the supply of Iranian oil which in its turn will result in price rise of WTI oil produced in the U.S. to $123 per barrel.
In case of a full-scale war starts out, Iran's production could fall by 1.5 million bpd. Afterwards, OPEC+ is likely to start supplying more oil to the market causing a reduction in the alliance's spare capacity. There is a possibility that in 2025, the Brent price will remain at $100 per barrel, with the WTI price costing $93 per barrel. Referring to some observers, such conditions of world oil quotations might strengthen the dollar exchange rate against national currencies.
The decline in the weighted average rate of USD-KZT to 448.06 KZT per 1 U.S. dollar (-0.26 KZT) was caused by the excess of supply of foreign currency over demand on the domestic market last week. The National Bank of Kazakhstan noted that trading activity on April 12 was elevated to $271.3 million (+13.3 million). Market sentiment could be supported by the continuation of high prime rate, rising oil and news about its higher production relative to OPEC+ quotas.
