“We don’t need too high prices either”
Oil prices are clearly in no hurry to rise, despite ongoing tensions in the Middle East. After a short jump in prices on Friday, April 19, in the morning to $88.8 per barrel, which was preceded by an Israeli retaliatory strike on the Iranian Isfahan, the benchmark Brent soon fell in price to $86.8. But all these fluctuations do not even reach the level of $90 per barrel, which was already before the exchange of blows. How will price dynamics develop further on the global oil market? The answer to this question should be sought on the geopolitical plane. For Russia, the current situation is rather beneficial: too expensive oil will kill the demand for its raw material exports.
The Israeli attack on a military base north of Isfahan was carried out using drones, which were shot down by Iranian air defense forces, the pan-Arab satellite TV channel Al Mayadeen reports. The news provoked a new wave of fears about the escalation of the Middle East conflict, restrictions on oil supplies from the region and its rise in price to some prohibitive levels. On Friday, April 19, at 8.20 Moscow time, the cost of June futures for Brent on the London ICE Futures exchange was $88.81 – exceeding the previous trading figure by $1.7. But then there was a pullback down by $2.
Earlier, on the night of April 14, Iran launched 185 drones, 36 cruise missiles and 110 ballistic missiles at Israel, according to calculations by The New York Times. The Islamic Republic did so in response to an alleged Israeli attack on the Iranian embassy in Damascus on April 1, marking the first time it carried out a direct attack from its territory (rather than with the help of Yemen's Houthi rebels and the Lebanese Shiite group Hezbollah).
Nowadays, the global information space is clearly dominated by alarmist forecasts regarding the future fate of the oil market. If the Iran-Israeli conflict escalates into a full-scale war in the Middle East, the price of Brent may more than double to $190 per barrel, Bank of America believes, for example. Another scenario involves a price jump of $30-40. In any case, the bank's analysts note, the situation is fraught with serious interruptions in the supply of Iranian oil, a refusal to navigate the Strait of Hormuz and the market losing 2 million barrels per day.
“This story doesn’t seem so scary to me,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation. – It appears that the US was able to convince the Israelis not to launch a truly massive retaliatory attack on Iran, which is what ultimately happened. Both sides of the conflict declared their “victory” and in a sense saved face. We do not see any escalation yet: Iran did not block the Strait of Hormuz, and Israel did not strike its oil facilities, since there were no direct reasons for this. The market reacted to the events quite adequately, and in the future the price of oil may even decline. In general, fear has big eyes: initially there were more fears than actual cases of their implementation. And now commodity quotations, which a week ago confidently remained above $90, began to decline after the Iranian attack on Israel. We can assume that they are being corrected and returning to normal.”
Russia has nothing to fear yet: its oil exports are not decreasing, maintaining the same, fairly large volumes; routes invariably pass through the Middle East region, along the Red Sea (starting at the ports of the Leningrad region and Novorossiysk). At the end of February, supplies to India increased by 14% compared to January and reached a level of 7.9 million tons. It is also important that in the opposite direction — from India to Europe through the Red Sea — there are petroleum products made from Russian oil. That is, Moscow is absolutely not interested in destabilizing this route: if, say, Iran closes the Strait of Hormuz, prices, as Western analysts predict, risk immediately soaring above $150 per barrel. Of course, this may give Russia a quick profit, but in the long term the demand for such expensive oil will tend to zero.
“When the economic situation is directly affected by politics, it is extremely difficult to predict further developments,” says the head of the sales and customer support department at Alfa-Forex. Alexander Shneiderman. – Apparently, the conflict will not end suddenly: there are too many prerequisites for its protracted development. Accordingly, oil and other energy resources will become more expensive. Forecast for the near future — over $90 per barrel. Geopolitical instability will affect both the global standard — Brent, as well as for other grades, including the Russian Urals.
As a result, Shneiderman argues, the volume of budget revenues from oil sales received in excess of what was planned will increase. Which, in turn, will allow the government to reduce the budget deficit and replenish the National Welfare Fund.
«Houthi pirates in the Red Sea have almost put an end to transit shipping through the region. As a result, oil exporters had to pay an increased tariff, including a risk premium, notes financial analyst and private investor Fedor Sidorov. — Now the situation has become even more tense. Not only sea routes and land transport communications are under threat – but in general the entire oil-bearing infrastructure, including fields and refineries. A decrease in supply volumes will lead to an increase in quoted prices, at least in the next month. For Russia, this is a definite chance, allowing, against the backdrop of a growing deficit, to increase export volumes and, accordingly, oil and gas revenues.»