Whenever there is the slightest hint of catastrophe in the Middle East, the price of oil tends to act as a financial stand-in for a gauge of global fear. Despite the glut of shale oil and fracking in the U.S. — as well as the Russian workarounds that have diverted hydrocarbons to China — the Middle East is still the dominant region for the world’s petroleum, with countries like Saudi Arabia dominating the OPEC+ cartel that sets the price of the fuel. Crude oil spiked in February after an earthquake rocked Turkey; last year, when Yemeni Houthis attacked a Saudi oil refinery; in 2020 after the U.S. killed Iranian general Qasem Soleimani. And after October 7, when Hamas killed 1,400 people in Israel, and Israel began retaliating with airstrikes that have killed thousands more in Gaza — there was another spike in oil prices, at least for a little while. Then the prices started falling. On Thursday, a barrel of crude oil was $81, around the lowest point of the week. A gallon of gas is about 35 cents cheaper than it was a month ago in the U.S.
The price of oil isn’t among the major consequences of a war where thousands of civilians, including many children, have been killed. But the price of oil is still crucial to the workings of the global economy, since it’s still by far the most dominant source of energy the world over. A November 1 analyst report from Goldman Sachs notes that there are “extreme levels of fear around an oil price spike” because of the war. Still, the decline is a surprise, even to those who follow these movements for a living. “I’m shocked that the price of crude oil is lower today than on October 7,” said Tom Kloza, the global head of energy analysis at OPIS, a commodities research firm.
When the oil markets opened the day after the October 7 attack, the immediate moves were predictable, even as analysts noted that the impact would be temporary. The reason was probably best summarized in 1973 by former Israeli Prime Minister Golda Meir: “Let me tell you something that we Israelis have against Moses,” she said. “He took us 40 years through the desert in order to bring us to the one spot in the Middle East that has no oil.” To put this into perspective, Israel had about 2 million cubic meters of oil in its reserves in 2021; Saudi Arabia had about 41.1 billion. As far as the oil market is concerned, the only reason to be concerned would be if the war spilled over and disrupted the total supply of the commodity on the market. “So far, we have not seen any supply removed,” Kloza said.
The problem with seeing the world refracted through a price chart is that simple explanations tend to wither on closer examination. In the case of the price of oil, geopolitical risk is just one part of the equation, alongside all kinds of mundane risks from infrastructure issues to the weather. When I talked with Kloza, he said that these are, primarily, the factors keeping the price fairly low. The October 7 attacks coincided with several major oil refineries going offline for maintenance. Since they tend to drive demand, that’s softened the price. The likelihood of a warmer winter in the northern U.S., thanks to El Niño, is also keeping oil and gas relatively cheap. To some extent, the worries about a coming recession may also be weighing on the price of gas as it is warping the global bond markets, but the persistent warnings of an economic slowdown for the last three years have made that less of a worry for oil traders. “So far, the data for the U.S. doesn’t suggest we’re in an industrial recession or the consumer is tapped out,” Kloza said. “Talk of recession is like Waiting for Godot.”
