Rising tensions in the Middle East typically trigger a knee-jerk increase in the price of oil. But these are not typical times for the oil market. With several factors already weighing on the price of oil, increasing frictions in this historically tumultuous region are poised to counter-intuitively exacerbate the negative outlook for oil.
Analysts have a plethora of reasons to support the consensus view that oil will remain low for the foreseeable future — the slowing Chinese and stagnant European economies, Saudi Arabia's reduced public subsidies, the impending resumption of Iranian exports, and the recent repeal of the U.S. export ban, just to name a few. The one given caveat to any bearish oil futures call has traditionally been the prospect for an uptick in instability in the Middle East, particularly the Persian Gulf. In fact, the price of oil has always carried an inherent geopolitical risk premium for this very reason.