An Unexpected Correlation Between Crisis in the Middle East and Fluctuation of Oil Prices

Ever since the beginning of the Israel-Palestine war, the tension in the Middle East continued to rise. The Houthi Movement of Yemen, suspected of receiving military and financial support from Iran, is significantly disrupting global trade. After the war began, the Houthi began the attack on all ships heading to Israel using drones and ballistic missiles. The region controlled by the Houthi - the Hormuz Strait - is the key to global trade as it is the only pathway to the Suez Canal, which connects the Indian Ocean and the Mediterranean Sea. As a result, companies are being forced to travel around the African Continent, while Western countries like the US initialized attacks on the Houthi.

Among the ships being attacked are oil tankers exporting fossil fuels produced in the Middle East. Thus, the apparent prediction from this situation is that the oil price will skyrocket. However, this is not the case, as oil production worldwide continues to increase at a rate that keeps oil prices stable. The nation-leading this trend is the US, which set records in oil production with 13.3 million barrels per day and became the largest LNG exporter in the world. Other major oil producers are also increasing their production to keep up with the US. Then, what motivated the US to make such a decision?

When oil was in shortage in the spring of 2022 due to Russia cutting its exports to the Western world, the US requested OPEC members, primarily Saudi Arabia, to increase their production and lower gas prices. However, this request was not accepted because OPEC members wanted to maximize their profit when oil prices were at an all-time high. This decision caused global inflation, harming the economies of many countries. 

The US eventually decided to step in and display its capabilities in oil production, as President Biden declared “The War on Energy” to lower gas prices. Since the US began extracting shale gas, it has always had the potential to become the most prominent oil producer. Now that this is happening with the US exporting more fossil fuels than ever, the supply is now sufficient. Therefore, OPEC's decision to cut down its production is facing a backlash since it sells less oil at lower prices. 

For the moment, this decision of the US can be considered a success. For instance, an OPEC member, Angola, left the organization because it disagreed with keeping oil production levels low. It is expected that the US will continue this trend as Biden approved the Willow oil drilling project in Alaska, which would allow the export of natural gasses to Asia. Energy is more valuable than ever, and the one with control over it will be the world's leader.