Global oil price issues are back in the news because everyone is confused about why they have to pay so much at the gas station even though a ceasefire was announced. Just a few days ago the US and Iran agreed to a two week break in the fighting but the prices did not go back to normal like people hoped. In fact after a small drop on Wednesday the market started to go up again because traders are very nervous about the future.
When you look at the global oil price today you see that it is still much higher than it was before the war started in February. This is because a piece of paper saying there is a ceasefire does not immediately fix all the big problems in the water.
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The real cause of high global oil price
The main reason for the high global oil price is that the Strait of Hormuz is still not really open for business. Even though there is a truce the Iranian military is still asking every ship for permission to pass through that narrow area.
Many big shipping companies are scared to send their tankers back into the Gulf because they think the fighting might start again at any moment. Because about 20% of the world’s oil goes through that one spot any delay or fear makes the global oil price jump up. It is like a big traffic jam where the cars are full of expensive oil and nobody knows when the road will be truly clear.
Another big problem is the damage to the oil infrastructure like refineries and pipelines that happened during the last few months of attacks. Even if the war stopped today it would take months or maybe even years to fix the broken pipes and the export terminals. This means the supply is still very low while everyone in the world still needs energy to run their cars and factories. The global oil price stays high because there simply isn’t enough oil being moved to the market right now. Also many countries have used up their emergency reserves during the conflict and now they are trying to buy more oil to fill them back up which creates even more demand.
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We also have to look at what is happening with other countries in the region like Israel and Lebanon. Even with the US and Iran taking a break there are still big attacks happening nearby and this keeps the markets on edge. Investors don’t like uncertainty and they are betting that the global oil price will stay “higher for longer” because the peace feels very fragile. If the ceasefire breaks before the two weeks are over the prices could even go above $110 per barrel again. This makes life very difficult for regular families who are already dealing with high costs for groceries and electricity.
The global oil price is also affected by how much it costs to insure the ships that are brave enough to travel near the war zone. The insurance companies are charging millions of dollars more because of the risk of sea mines and drone attacks. All these extra costs are added to the final price we pay at the pump. Until there is a long term peace deal that everyone trusts the global oil price will probably stay stuck at these painful levels. It shows that the world’s energy system is very sensitive to what happens in that small part of the Middle East.
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We are seeing that politics and war have a direct impact on our wallets every single day. The global oil price won’t come down just because of a temporary stop in the bombing. We need to see ships moving freely and the oil fields working at full capacity again. Until that happens the global oil price will continue to be a big headache for the whole world economy. We can only hope that the leaders find a way to make the peace last so that things can finally get back to the way they were before the crisis began.
