The price of oil has surged past $100, nearly a doubling since Israel and the US launched military strikes on Iran.
The geopolitical tensions are sending shockwaves through not only the Middle East but the entire world.
As of Sunday evening, the two main oil benchmarks, Brent Crude and West Texas Intermediate (WTI), stood at $107 and $106 per barrel (p/b), respectively.
Oil trade disruptions
Additonately as a result of Iran having shut down the critical oil trading route, the Strait of Hormuz, the major oil producers Iraq and Kuwait have shut down their production.
Iran, the world’s fifth largest oil producer at just over five million barrels per day (bpd), and thus not surprising that military strikes targeting the country’s energy infrastructure would have a resounding impact on the global oil price.
Despite US President Donald Trump on the back of the US invasion of Venezuela in early January, wanting to lower oil prices to below $50 p/b as one of the reasons behind the military action, it has now nearly doubled, causing serious global economic concerns ahead of markets opening Monday morning.
What does it mean for climate action and the energy transition?
From a climate and clean energy perspective, there are pros and cons to a higher oil price.
A higher energy price means higher electricity prices and an increase in the price of petrol, and could lead to energy conservation, which means lower consumption. However, it also means more profit p/b for oil companies and crucially, meeting the threshold, making it possible for companies to invest in oil exploration, which is bad news for the energy transition and reducing our reliance on oil.
One could say that, until the oil price stabilises again, boost clean energy. But the clean energy sector is not immune to the fact that the global economy is tied to the oil price. The manufacturing of solar panels, wind turbines, batteries, and electric vehicles (EV’s) is still mainly powered by fossil fuels, as is the transportation of the materials to where they are needed. This will, of course, change as clean energy sources continue to eat into fossil fuels’ share in the energy system.
If there are to be any climate action benefits from the high oil price, then it would be on energy conservation, as gasoline prices are also soaring around the world in line with the rise in oil prices.
The outlook appears to be one where it is going to get worse before it gets better, as there’s no evidence that Israel and the US are scaling down their activities. The US bank JP Morgan predicts the oil price to hit $120, with Kuwait saying it could go as high as $150.
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