Middle East Tensions Put Oil Markets On Edge

With John Bolton the National Security Adviser to President Trump and Israel’s Prime Minister Benjamin Natanyahu egging the United States to go to war with Iran, one would expect tensions across the Middle East to escalate affecting oil prices and threatening a disruption of supplies.

Fortunately, war with Iran is not an option for the United States because the damage to US national interests in the Middle East and economy will be unimaginable causing oil prices to surge to more than $130 a barrel. That would exacerbate US budget deficit and add significantly to the $22 trillion of US outstanding debts. Moreover, it could cost President a second term in the White House.

A case in point is the invasion of Iraq. The United States won the military battles but the real winners of the war were China in terms of its huge investments in Iraqi oil and Iran in terms of its pivotal political influence in Iraq.

Furthermore, President Trump has a far bigger war to deal with, namely the trade war with China.

The trade war between the two superpowers could be a game changer for the economic and geopolitical balance of power in the 21st century. It is about the petro-yuan undermining the supremacy of the petrodollar and by extension the US financial system, the new order in the 21st century, China’s overwhelming dominance in the Asia-Pacific region and the control of the South China Sea.

The recent drone attacks on oil pumping stations in Saudi Arabia and the damage caused show how easy it is to inflict damage on major oil installations like the Saudi oil terminal of Ras Tannura and also to mine the Strait of Hormuz through which some 19 mbd of oil pass every day.

Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London