Global stock markets have experienced a roller-coaster ride during US President Donald Trump’s trade wars. He rolled the dice again by authorising strikes on Iran, but he could yet get lucky if Israel and Iran can stick to a ceasefire.
Trade wars and hot wars have opposite effects on oil prices. Having dropped to about US$60 per barrel in early May from fears over Trump’s tariffs, oil prices have seen swings since the start of the Israel-Iran war.
The impact of the fighting on oil prices was comparatively modest before the United States joined the fray, with Brent crude hovering below US$75. Oil prices rose immediately after US bombers and submarine-launched missiles struck three Iranian nuclear facilities before experiencing a sharp reversal.
Prices fell below US$69 during Tuesday’s trading, returning to where they were before Israel began attacking Iran on June 13. After Iran gave advance warning before launching missiles at the Al Udeid US military base in Qatar on Monday, markets seem to be betting that Iran will not weaponise oil in its retaliatory strikes.
Markets also seem unbothered by the supply of oil. Global inventory rose by 93 million barrels in May, and producers from outside the Opec+ cartel are expected to increase supply by 1.4 million barrels per day this year. Global capacity is expected to grow twice as fast as demand in the next five years, according to the International Energy Agency (IEA).
Compared to the oil crises in the 1970s, the conflict between Israel and Iran has had less impact thanks to technological advances. The world has become more resilient through improved energy efficiency, and renewable energy has been widely embraced. The rapid transition to electric vehicles (EVs), particularly in China, is significant. The IEA expects EVs to displace an estimated 5.4 million barrels per day of oil demand by the end of the decade, up from 1.3 million last year.
The direction of potential impact has shifted. The US suffered stagflation during the oil embargoes of the 1970s, but the shale revolution has enabled it to become a net exporter of oil. Meanwhile, China’s rapid industrialisation in recent decades has led it to replace the US as the world’s leading energy importer.
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