One clue has rarely been missing in recent days whenever the terrorist attack by Hamas on the south of Israel was discussed: the massacres and atrocities committed by the militia ruling in Gaza fell almost exactly on the 50th anniversary of another attack – the attack by a group of Arabs States on Israel, now known as the Yom Kippur War. The year was 1973, and the oil crisis was ensuing, during which the price of a barrel (159 liters) of crude oil briefly skyrocketed by an almost unimaginable 70 percent and then rose even further. The result was Sunday driving bans, empty highways and a veritable economic crisis in Germany and other countries. Events that etched themselves into the nation’s economic memory.
In comparison, the current outbreak of violence in the Middle East has so far gone largely unnoticed on the raw materials markets. The price of the reference variety WTI made a small jump the day after the Hamas attack, but lost it again just a few hours later. At around $85, it even remained well below the values at the end of September, when the investment bank Goldman Sachs was already predicting a development towards $100 and more. The markets as a whole therefore remained largely calm, contrary to what such an escalation in the Middle East would have suggested. “The conflict between Israel and Hamas has no direct impact on the oil trade,” said the International Energy Agency (IEA) in a recent analysis of the situation.
The central reason lies in the differences between the two wars: in 1973, not just one terrorist organization, but several states attacked Israel. In addition, there was an economic war: the oil producing countries organized in OPEC massively reduced their production volumes and thus reduced supply on the world market – with the aim of dissuading the western industrialized countries from supporting Israel. It was a coordinated action that was so powerful because OPEC had even greater pricing power on the oil market at the time than it does today. After all, a shale oil industry has been established over the past few decades, especially in the USA, which is able to ramp up and scale down production comparatively quickly depending on price levels.
Of course, the risk of another oil price shock is anything but averted. Much will depend on whether Hamas’s secret supporter – the oil-producing country of Iran – is openly drawn into the conflict – and whether there may even be military strikes against Iran. “As long as the crisis continues, the markets will be on the hook,” said the IEA. “A third of the oil trade carried out across the seas” is still generated in the Middle East.
How the oil price develops over the winter depends on more than just developments in Israel and its neighboring countries. What will be even more important is how demand develops in China and, above all, how oil-producing countries such as Saudi Arabia or Russia react to it. The original increase in prices in September also occurred because OPEC had expected less demand from Asia and therefore reduced its production. However, the economic signals are not yet clear. It is still unclear whether the US economy will have a soft landing, when and how much China will recover and also whether Germany, the European growth engine, will get going again.
However, given the current situation, one thing is likely to be largely ruled out. Car-free Sundays are unlikely even if there is further escalation in the Middle East.
This article first appeared on Capital.de.
