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It’s all about Iran and Saudi Arabia.
What starts in Israel can turn the global energy market upside down. That’s a lesson from the 1973 Yom Kippur War, which started almost exactly 50 years ago with a surprise attack by Egypt and Syria on Israel and helped kick off an embargo from Arab members of the Organization of Petroleum Exporting Countries to punish the United States for supporting the Israeli military.
But despite the superficial similarities between the two conflicts, few analysts expect spiraling oil prices — at least not yet.
“Neither Israel nor its direct neighbors are large oil producers. Hence, we judge the near-term risk to oil supply as limited,” Morgan Stanley analysts wrote in a note to clients. “That could change in case the conflict were to extend to other countries in the region.”
The risk to oil supplies largely stem from how the conflict in Gaza affects oil-producing nations in the Middle East, namely Saudi Arabia and Iran.
“The big risk to oil is the odds of the conflict escalating into the Persian Gulf. There could be disruption to oil flows stemming from a U.S. or Israeli escalation against Iran, if it becomes clear that Iran was directly involved in the conflict,” Eurasia Group analyst Greg Brew told me. “That could come in the form of a U.S. crackdown on Iran oil exports — which the U.S. has been disinclined to do this year — which would trigger an Iranian response in the Persian Gulf.”
Rory Johnston, founder of Commodity Context, said that up to one million barrels per day of Iranian exports were at risk if Israel and the United States determined Iran was responsible for the attacks and responded accordingly. “Will Israel attack Iranian infrastructure in retaliation? U.S. sanctions enforcement has been weak over the past year as part of a suite of efforts aimed at getting Iran back in some kind of nuclear deal — does that reverse?”
“If the U.S. or Israel decides to take the fight to Iran, [it] would spin things out in a way that would disrupt oil flows and push prices upward,” Brew told me.
The other major player is Saudi Arabia, which was in the process of negotiating a U.S.-brokered deal to formally recognize Israel, which would be a tectonic shift in the politics of the Middle East.
Last week, oil prices actually declined meaningfully thanks to optimism about the Saudi-Israeli-American deal. The Wall Street Journal reported on Friday that “Saudi Arabia has told the White House it would be willing to boost oil production early next year if crude prices are high,” explicitly in order to help pave the way for a deal with Israel.
Earlier this year, Saudi Arabia announced that it would cut production down by a million barrels a day to nine million, a move which immediately raised suspicions that it would, intentionally or not, damage the Biden administration by leading to a hike in gas prices. Towards the end of last year, average gas prices fell as low as $3.09 per gallon, before rising to $3.87 in August. They are around $3.80 today.
The Biden administration has been trying to navigate twin goals of containing consumer prices — including for gasoline — and transitioning away from fossil fuels. Alongside the unprecedented investments in clean energy from the Inflation Reduction Act, this has meant using federal policy to lower gasoline prices by releasing oil from the Strategic Petroleum Reserve last year and then trying to bolster U.S. production in the short term by buying oil at prices just above the breakeven price for profitable drilling.
Last Wednesday, OPEC announced that Saudi Arabia and Russia would maintain its previously announced production cuts through the end of this year. Prices for Brent crude went over $96 a barrel late last month and then fell to $84 by the end of the last week, before jumping up to around $87.50 today.
“At least part of last week’s…selloff was the news that the Saudis were negotiating with the Biden admin officials regarding Riyadh officially recognizing Israel, and as part of that deal Saudis were saying that they might ease the current production cuts early next year,” Johnston told me.
“Hard to imagine that the prospects of such a deal remain as strong given what we know Israel is going to do in Gaza in retaliation. Indeed, wedging Israel and Saudi exactly like this is one of the working theories for Iran’s possible involvement.”
At least so far, Israel and the United States have been cautious about blaming Iran for the attacks, thus likely limiting fears that the global energy market will spin out of control. For now.
Matthew is a correspondent at Heatmap. Previously he was an economics reporter at Grid, where he covered macroeconomics and energy, and a business reporter at BuzzFeed News, where he covered finance. He has written for The New York Times, the Guardian, Barron's, and New York Magazine. Read More
Read MoreA new report forecasts a future where reefs go over a “tipping point.”
Coral reefs are a thing of wonder, both organism and underwater infrastructure that houses thousands of species of fish. They are also, as you might already know, in grave danger. Climate change is contributing to massive waves of coral bleaching around the world, from the Great Barrier Reef to the ocean off of Florida, where an extreme oceanic heat wave this year turned mile after mile of reef a ghostly white.
We’ve known about coral bleaching for years, but a new report out Wednesday draws fresh attention to corals’ plight, including reefs — along with ice sheets, rainforests, and ocean currents, among others — on a list of imminent climate “tipping points.” And if they go over the brink, the consequences could reach far beyond the ocean floor.
According to the report, about a billion people, or 13% of the world’s population, are estimated to live within 100 kilometers of a coral reef. Together, those reefs provide $9.9 trillion of economic value each year. Reefs are sources of both nutrition and income; in Australia, the Great Barrier Reef is estimated to create 68,000 jobs and 5.7 billion Australian dollars of revenue each year, mostly from tourism. This means the risk to coral is a risk to humans, as well.
There’s still a lot we don’t know — “There are numerous pathways by which coral reef degradation may cascade into social and economic tipping points,” the authors write — starting with how exactly coral loss affects fish. Some studies have found that species like butterfly fish and parrot fish were negatively affected when their local coral bleached; other studies have shown fish communities getting on just fine.
But those bleaching events were limited. The authors of the “Global Tipping Points” report — led by Tim Lenton at the University of Exeter’s Global Systems Institute, in collaboration with a couple hundred researchers from around the world and received funding from the Bezos Earth Fund — suggest that coral could soon suffer something catastrophic and nearly irreversible on a worldwide scale.
“Documented impacts of coral cover declines include a loss of fish species, reductions in overall fish biomass and productivity, and potential destabilization of the food web,” the authors write. “If reefs are forced by climate change into low-productivity states, and if these states in turn force fish communities across a tipping point into a less diverse and less productive state, many coastal human communities will be forced to modify their lifestyles in significant ways.”
It’s yet another example of the sort of compounding disaster that climate change tends to bring, and a reminder of the interconnectedness of the ecosystems we live in and rely on, even if we can’t always see them. As Benji Jones writes in Vox, scientists are doing their best to find ways to save coral reefs; soon, however, their jobs could turn entirely to resurrection.
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