The war escalation drives up the price of oil

BarcelonaThe escalation of the war in the Middle East, with the Houthis entering the conflict, has sent the price of oil soaring this Monday, reaching highs since the start of the war. During the day, the price of a barrel of Brent crude exceeded 115 dollars, although it later fell slightly and in the afternoon stood at around 112 dollars per barrel.

Brent crude has risen by around 58% in this first month of war, the most pronounced monthly jump since 1988, and has surpassed the gains achieved during the Gulf War of 1990. US crude, West Texas Intermediate (WTI), has risen by 51%, its largest monthly increase since May 2020.

The increases have been driven by Iran's effective closure of the Strait of Hormuz, a chokepoint for approximately one-fifth of the world's oil and gas supply. The conflict, which began on February 28 with attacks by the United States and Israel against Iran, has since spread throughout the Middle East, fueling concerns about maritime routes around the Arabian Peninsula and the Red Sea.

"If the Houthis were to attack shipping and close the southern entrance to the Red Sea, the price would likely jump by $5 to $10," said Robert Yawger, director of energy futures at Mizuho, Reuters reports.

The war has forced a redirection of Saudi crude exports that previously exited through the Strait of Hormuz, and now exit through the port of Yanbu, on the Red Sea. 4.658 million barrels per day exited through this port last week, according to data from the analysis firm Kpler. This represented a sharp increase compared to an average of 770,000 barrels per day in January and February. But if exports from Yanbu were to be interrupted, Saudi oil would have to pivot to Egypt's Suez-Mediterranean (SUMED) pipeline to the Mediterranean, according to JP Morgan analysts, which has less capacity.

Asia is one of the most affected regions in the world by the closure of Hormuz. For this reason, the Vietnamese company Binh Son Refining and Petrochemical said on Monday that it is in talks with Russian partners to buy crude oil. The company said it will also buy more crude from Africa, the United States, and Southeast Asia.

Meanwhile, the energy and finance ministers, as well as the central banks of the G7 countries, meeting exceptionally on Monday to address the crisis, expressed at the end of the videoconference their willingness to adopt all necessary measures in close coordination with their partners to preserve the stability and security of the energy market.

This "unprecedented" summit on energy and finance, as highlighted by the French Ministry of Economy, Finance, Industrial and Digital Sovereignty, Energy, host of the meeting, also pointed out the importance of coordinated international action to mitigate the indirect effects of the crisis and safeguard macroeconomic stability.

In this way, the ministers of the United States, Canada, Japan, France, Italy, Germany, and the United Kingdom have assured that they continue to closely monitor the evolution of the situation and the possible impact on global growth and financial market conditions. In particular, in line with their respective mandates, the G7 central banks have expressed their firm commitment to maintaining price stability and ensuring the continued resilience of the financial system.

Fuels, on the decline

Despite the rise in the price of oil, the Spanish government's tax cuts on VAT on fuels and the special tax on hydrocarbons are beginning to have their effects. Prices at petrol stations have begun to fall, although they remain above the price they were before the war. Thus, the price of 95-octane gasoline in Catalonia, on average, stood at 1.55 euros per litre on Sunday, compared to 1.49 euros before the conflict. However, it has been falling from the maximum of 1.81 euros per litre it reached before the tax cuts were decreed.

In the case of diesel, the escalation was greater than that of gasoline, and the price decrease after fiscal rebates were applied has also been smaller. Thus, a litre of diesel, which cost an average of 1.43 euros in Catalonia before the conflict, reached 1.95 euros per litre, before falling to 1.77 euros on Sunday. Even so, diesel is more expensive than gasoline, which is not usual, but which also happened after the outbreak of the war in Ukraine. This is due to the fact that European refineries in general have little production capacity for diesel, which is normally imported in large part directly from crude oil producing countries.