Middle East, for years now has been a battle ground for Sunni and Shite Muslims. Previous years saw escalation of conflict in Syria that led to escalating tensions between US and Russia. Oil price had spiked over the issue but price action failed to gain traction despite rise in tensions.
- If history is of any guide, oil price usually shrugs of these tensions even in shorter term, unless serious escalation like previous gulf war takes place.
Why oil supply is not at risk?
- Conflicts and buying of arms require money and Middle Easterns including the terror groups are fully aware of such. Oil is truly a liquid gold for them. Moreover oil wells in Saudi Arabia, Iran, and Kuwait are guarded heavily to keep the oil production intact.
Current Status of the fight -
- Saudi Arabia has continued to bombard the rebel positions in Yemen, however oil price has been mute over the second day.
- Iran has remained somewhat silenced over the issue, though it was raised during negotiation by both Mr. Rouhani and Mr. Kerry. Iran actions might remain mute, as it will probably not give into provocations prior to a possible nuclear agreement.
How deep are the conflicts?
- Conflict is quite deep and running for years now. It remains a story of power struggle between Iran and Saudi Arabia, also between US and Russia over their influence in the region. This actually led to civil war and rise of militant group ISIS, which might cost the world more in future.
- Power struggles already runs deep within Iraq, Bahrain, Syria, Libya and Lebanon and now direct involvement of Saudi Arabia sure turn things a bit hotter.
Risk for oil price -
- Targeting the wells - Militant groups or countries might target the wells to dismantle a country's economy. However seems unlikely for now, as money is more required with dollar so strong and oil so weak.
- Oil choke points - Three important channel should be in focus Gulf of Aden, Strait of Hormuz and Suez Canal. It is another unlikely, as Iran needs money now more than ever and stands ready to export a lot of oil, should the nuclear deal gets done. However Iran recently has increased military presence in Strait of Hormuz.
