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Although commodity markets initially responded calmly to the conflict, the World Bank highlighted the historical data indicating that sustained instability in the Middle East could disrupt commodity supplies, with a particular impact on oil prices. In this brief 4-minute read, we will delve into the dire situation in the Middle East, its repercussions on the global economy, and its connection to President Biden’s proposed Oil and Gas plan.
The Middle East :
The report stated, ‘Although neither Israel nor Gaza is a major energy producer, an escalation of the conflict and its spread to the wider region could result in substantial price increases for oil and other commodities.’ It also emphasized the potential destabilizing impact on the global economy and the risk of food price increases in conflict-affected regions.
According to the World Bank, depending on the extent of disruption to the global oil supply, oil prices could rise from the fourth quarter baseline of $90 per barrel in 2023 to approximately $102 in a ‘small disruption scenario’ or even as high as $157 per barrel in a ‘large disruption scenario.’ Such oil supply disruptions can have cascading effects on the prices of other commodities, with natural gas prices being particularly susceptible to transportation disruptions, as noted in the World Bank’s report.
As of today, the conflict has resulted in the loss of lives on both sides, with significant casualties among Israeli citizens, soldiers, Americans, and Palestinians. The situation remains fluid, with Israel expanding its ground operations in Gaza.
Biden’s Oil and Gas Plan :
In a separate development, The Wall Street Journal reported that President Biden has leased a relatively small number of federal lands for oil and gas development during his first 19 months in office. Only one president since the end of World War II leased fewer federal acres for such purposes, with President Truman being the exception due to the timing of federal leasing on the Outer Continental Shelf. President Biden recently released a five-year Outer Continental Shelf leasing plan that reduces the number of lease sales compared to his predecessor, President Trump.
Furthermore, President Biden has faced legal challenges to his oil and gas leasing policies, with federal courts declaring some of his actions, such as the ‘pause’ on leasing, to be illegal. This has led to ongoing debates about the administration’s approach to energy development.
In addition to these factors, concerns about inflation have arisen, partially driven by rising gas prices. The decision by Saudi Arabia and Russia to reduce daily oil production may further contribute to the potential for higher oil prices in the near future.
It’s important to note that President Biden’s energy and environmental policies have been a subject of debate, with restrictions on onshore federal oil and gas leasing, drilling, and development, as well as decisions related to mineral and uranium deposits, attracting attention from various stakeholders. These decisions come in the context of efforts to transition toward renewable energy sources while also addressing the country’s energy needs.
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