Oil Prices: After the Escalation of Tensions in the Middle East

Oil prices surged between 9 and 10 percent, reaching their highest level since January. Long lines have already formed at gas stations in Rome and Paris. Will this have a lasting impact on oil prices?

“The market reaction has been extremely strong. We saw oil prices climb to around $77 per barrel for the American benchmark crude. Gold prices increased, while other risk assets, such as stocks, came under downward pressure. Anything linked to the economy in a positive way suffers because higher oil prices mean more inflation and slower global economic growth. This reaction occurred despite the market being warned to expect military actions.

So far, this resembles what happened in early October last year, when Iran launched missiles at Israel. At that time, within a few days, the market normalized, oil prices fell, and it became clear that the escalation would not develop into anything beyond minor military clashes between the two countries. No oil or gas infrastructure was affected, and the conflict subsided.

Currently, the market fears that Iran may retaliate strongly, having suffered significant damage from the Israeli strike. This could provoke an Israeli attack on oil infrastructure, causing oil prices to rise sharply since Iran is one of the major oil producers. A supply shortfall of between 1 and 3 million barrels per day would push prices above $100 per barrel.

This scenario would have a considerably negative impact on our economy and fuel prices in Bulgaria. Of course, it’s difficult to predict the exact extent of the effect, but there is about a ten percent risk that fuel prices in Bulgaria could increase if this scenario unfolds,” explained financier Tsvetoslav Tzachev.