Crude Oil Price: security vacuum left behind by the US in the Middle East worries investors!

 

Security vacuum in the Middle East

The price of crude oil significantly fell on Monday defying the usually favourable factors to the contrary such as the drop in the US crude oil inventories and the clear upward trend of global demand.

As of 10:30 GMT, WTI and Brent recorded $70.51 and $74.04 respectively; the prices of both benchmarks fell by nearly 2%.

Of course, the Delta variant has not gone away yet, but there is a decline in the rate of infections and deaths across the world. Apart from random lockdowns, the pandemic does not petrify the masses anymore, as we slowly come to terms with its presence among us and adapt ourselves just to live with it.

In light of this, the demand for crude oil is back on track and almost at pre-pandemic levels in many parts of world: factories are back in operation; traffic is back on roads; life is limping back to the new-normal.

Then, what on earth is going on with the price of crude oil?

It is true that the major oil importers in the world such as China and India are resorting to tapping their strategic petroleum reserves, SPRs, in order to curb the rising oil prices. It, however, can never be a long term fix to the problem, because reserves are not bottomless pits; not only are they for a rainy day, but will be depleted too, if a balance is not struck.

Having understood the gravity of this ‘solution’, even if it is the last resort, the importers are turning to the producers again in order to get a sympathetic ear.

Hardeep Singh Puri, the Indian petroleum minister, for instance, has called his Saudi counterpart, Prince Abdul Aziz bin Salman, for the second time in as many months on Friday, most probably in this regard. Mr Puri described the conversation as cordial; Mr Puri’s predecessor, Dharmendra Pradhan, had a public spat over the same issue with Prince Abdul Aziz in April, this year, when the latter asked the former to use the petroleum reserves that India used to fill up, when the price of oil hit rock bottom in 2020!

On its part, Saudi Arabia has already reduced the price of crude oil by over $1 for Asia this month. Iraq, the world’s fourth largest crude oil producer, has done the same by an even bigger amount. In short, the producers are not ignoring the plea from their regional customers.

The producers have their point to make too; the commodity in question is highly taxed in many countries in the world, including Europe. That’s why producers, more often than not, grumble about this aspect of the oil puzzle – without going public on it for obvious reasons.


Taxes on oil


As far as the major oil consumers in Asia are concerned, if the price of crude oil goes way above where it is now, the post-pandemic, fragile economic recovery is doomed to collapse.

The other worry that looms over the crude oil markets is the security vacuum left by the abrupt withdrawal of the air defence system and Patriotic batteries by the US from Saudi Arabia, implying that the region – or protecting long-term allies – is no longer strategic.

With that the oil infrastructure both Saudi Arabia and the UAE are exposed to growing external threats. The sudden visits made by the Crown Prince of the UAE - with the promise of huge investments – to the UK and France, analysts believe, show the gravity of the issue felt by the two major oil producers in the Middle East.

Since no country on the planet can substitute the US on the military front, the security concerns faced by the Kingdom, the world’s top oil exporter, will remain in the psyche of analysts for months to come, unless the issue is amicably resolved.

 

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