Middle East Crisis And Azerbaijan: What's Next For Oil Prices?

(MENAFN- AzerNews) Akbar Novruz Read more

The Israel-Hamas conflict has revived concerns about a sharp rise in oil prices. While the war has not escalated into a full-scale regional conflict, oil prices have surged by nearly 10%, reaching $78 per barrel. Analysts are also keeping a close eye on Iran's activity, with some attributing the price surge to the country's involvement. With Azerbaijan's 2025 budget planning for oil revenues based on a $70-per-barrel forecast, the question arises:

How will geopolitical tensions affect oil markets and Azerbaijan's economy?

Azernews consulted several prominent experts to analyze the developments.

Ilham Shaban, Head of the Caspian Barrel Oil Research Center

"Of course, the Israel-Palestine war, which started a year ago, is now expanding its geography. From September 30, it looks set to spread further with a potential conflict with Lebanon, and we've already witnessed powerful missile strikes by Iran in late September and early October. Israel, in turn, attacked Houthi bases in Yemen. All these developments have pushed oil prices up by more than 10%.

However, despite the risks, oil prices remain within the $78-80 range, well below the $100 mark. Why don't these risks push prices higher? The answer lies in supply. Global oil production remains strong. For instance, Iran, which used to produce 2.4-2.5 million barrels per day five to ten years ago, has increased its output to 3.35 million barrels per day as of September. Iraq's production has also risen to 4 million barrels daily, compared to less than 1 million barrels a decade ago.

Additionally, the global economy has slowed down since the Russia-Ukraine war, weakening demand. China, a major energy consumer, is growing at a much slower pace-6.4-6.5% GDP growth, which is low by its standards. With such factors in play, oil prices remain below 80 dollars.

It is impossible to predict the year-end price accurately. Markets are highly volatile, and unexpected developments-such as Israel targeting Iranian oil infrastructure or Iran retaliating against Haifa's refinery-could disrupt prices overnight. On the other hand, tensions might ease, bringing stability.

For now, oil prices are likely to stay between $70 and $75, a level that satisfies both investors and buyers. Ultimately, oil prices are driven more by geopolitical decisions than market demand, making them difficult to forecast accurately."

Azerbaijani Economist Natig Jafarli

"Oil prices are primarily influenced by news headlines. Escalating tensions involving Israel, Iran, Hezbollah, and Hamas-as well as attacks on tankers by the Houthis-have all contributed to the recent price surge. However, macroeconomic conditions play a more significant role in the long run. China's economic slowdown, for example, is reducing global oil consumption, which puts downward pressure on prices. If geopolitical tensions in the Middle East ease, oil prices could fall to the $55-65 range. The outcome of the U.S. elections will also impact the oil market. If Trump wins, his administration might take steps to lower global oil prices."

Regarding the possible effects on Azerbaijan's economy, expert suggests that the country should take a cautious approach:

"Azerbaijan should take a cautious approach. Setting the 2025 budget with oil priced at $70 per barrel introduces considerable risk. While prices may stay at that level, they could also drop unexpectedly. A more conservative estimate of $55 per barrel would provide a safety cushion. If market conditions improve by mid-year, Azerbaijan could adjust the forecast upward to $70-75 per barrel."

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