(MENAFN) Despite escalating tensions between Iran and Israel, oil markets have largely remained unaffected, with prices stabilizing at USD87 per barrel, the same level as before the recent intensification of conflict. This stability comes amidst fears of disruptions in the global oil supply chain, particularly through the crucial Strait of Hormuz, where approximately one-fifth of the world's crude oil passes daily.
The surprising neglect of oil markets towards the geopolitical tensions is attributed to what some describe as an "exaggerated" sense of fear. This is despite the potential for disturbances in the Strait of Hormuz, a vital maritime route for oil transportation. However, the relative calmness in market reactions is largely credited to the emergence of shale oil production in the United States.
The influence of shale oil on global oil markets cannot be overstated. Drillers in the shale oil fields of North Dakota and West Texas have flooded global markets with American oil, reshaping the balance of supply and demand worldwide. S&P Global vice president and Pulitzer Prize-winning energy historian, Daniel Yergin, noted that shale oil has not only transformed the geopolitical landscape but also the psychological dynamics of the oil market.
Two decades ago, the United States produced approximately 7 million barrels of oil per day while consuming 21 million barrels. During this time, Gulf states such as Saudi Arabia and Kuwait played crucial roles as major foreign suppliers to the United States, with significant oil shipments passing through the strategically vital Strait of Hormuz. However, the rise of shale oil production has significantly altered this dynamic, leading to a more diversified global oil market landscape and reducing the United States' reliance on oil imports from the Gulf region.
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