The relations between Iran and Saudi Arabia has worsened, which has brought more tension in the Middle East. This has raised worries about the disruptions of supply around. This is why the prices of Brent crude increased by 3% higher. It then came down to $38.10 per barrel. This might have slightly dropped, but it is still above the regular price by 2%. On the other hand, the US crude prices also went up by 2%, standing at $37.81 per barrel.
The reasons for the increased Middle East tensions and oil prices in the recent days?
The Shia Cleric Execution
Saudi Arabia caused a rise in the Middle East tension when they executed a Shia Cleric. This also rattled the share markets in general. The geopolitical tensions between Iran and Saudi Arabia have increased steeply, which has caused the market to put a premium on the prices as the markets open.
Saudi has cut the diplomatic links with Iran, which has an adverse impact on the oils prices. The protesters in Tehran, Iran robbed the Saudi Embassy after Sheikh Nimr al-Nimr was executed. As a result of the looting, the foreign minister of Saudi Arabia, Adel al-Jubeir gave a notice to the Iranian diplomats. The diplomats were given forty-eight hours to leave Saudi Arabia.
Conversely, the supreme leader of Iran warned Saudi that it would face immediate ramifications for the execution of the Shia Cleric. This has only led to more tension between the two countries and other neighboring countries.
With such a volatile environment in the Middle East, America has urged the leaders of the region to try and alleviate the tension. The tension has led to a reduced supply of the crude oil to the client states. As a result, the prices has steeped both in Saudi Arabia and around the world.
It is expected that the oil output in Saudi and Iran should drop significantly, which should then ease the supply issue. Finally, the oil prices will reduce, though this is expected to take a long time.
Will the prices drop?
Honestly, the prices will only drop when the environment is settled. That implies that the tension in the Middle East must ease for the prices to drop. With the US urging the leaders to take control of their countries, it is expected that the tension will slightly cool down. If this happens, then the environment will be safe and friendly enough for the oil trade. That is why the increased Middle East tensions and oil prices is a major factor.