The Middle East accounts for over one-third of the world’s seaborne oil trade, but recently, this role has been complicated by escalating geopolitical tensions and growing supply and demand dynamics. The strategic importance of the Middle East is revealed by chokepoints like the Strait of Hormuz and the Red Sea. Together, these waterways facilitate the transit of approximately 10% of global oil and 8% of liquefied natural gas (LNG). In late 2023, tensions involving Houthi attacks on oil tankers and rising US-Iran hostilities reignited concerns about supply chain security. However, the global market has shown a measured response to such risks due to improved monitoring technologies and robust stockpiles.
The International Energy Agency (IEA) reports that emergency reserves, totalling 4 billion barrels, provide a buffer against immediate supply disruptions. Still, prolonged conflicts risk inflating transport and insurance costs and strain global logistics.
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Supply and Demand Dynamics in 2024
Global oil supply is forecast to reach 103.5 million barrels per day (mb/d) in 2024. This growth is predominantly driven by non-OPEC+ nations such as the United States, Brazil, and Canada, whose combined output overshadows the Organisation of the Petroleum Exporting Countries (OPEC+) production cuts of 2.2 mb/d.
Demand growth, meanwhile, is expected to slow to approximately 1.1 mb/d. China remains a key consumer, bolstered by its expanding petrochemical sector. Conversely, advanced economies are experiencing subdued growth due to increasing energy efficiency measures and the transition to electric vehicles. This trend suggests a peak in global oil demand by the end of this decade.
The Economic Implications of Price Volatility
Oil prices are projected to stabilise at $65–£75 per barrel in 2024, assuming no major geopolitical shocks. This reflects a delicate equilibrium between rising production and moderated demand. Nonetheless, an extended conflict in the Middle East could drive prices higher, potentially reducing global GDP growth by 0.4 percentage points, as projected by Fitch Ratings.
The diversification of oil production has also complicated OPEC’s role as a price stabiliser. With the United States ramping up production to 13.3 mb/d, market dynamics are increasingly influenced by non-OPEC actors. This has led some experts to predict a market share war, with Saudi Arabia considering strategies to flood the market to maintain dominance.
Resilience in Market Responses
Despite the volatility, markets have exhibited resilience despite geopolitical uncertainties. For instance, the price shocks seen during the September 2019 attacks on Saudi Arabia’s Abqaiq facility were short-lived, largely due to rapid recovery efforts and efficient supply chain management.
The intersection of Middle Eastern conflicts and global oil markets continues to challenge policymakers and investors alike. While the region’s geopolitical tensions remain a critical factor, diversification of supply sources and technological advancements have mitigated the immediate impacts of disruptions.
Nonetheless, as the world transitions towards sustainable energy and demand peaks within the decade, the oil market must adapt to a future less reliant on fossil fuels. Vigilance and strategic planning will be crucial in navigating this evolving landscape, ensuring energy security while promoting economic stability.
