Following the missile attack launched by Iran against a US military base in Qatar, the oil market has reacted with a drop in prices. West Texas Intermediate (WTI) crude oil is trading below 70 dollars per barrel, representing a drop of more than 6%.
The decline in oil prices
The decline in prices is due to the widespread perception that the Iranian response was less aggressive than anticipated. Although it was an act of retaliation by Tehran, the fact that the missiles did not affect energy infrastructure or cause serious damage has been key in calming markets. In addition, the Strait of Hormuzthe crucial route for the transit of approximately 21% of the world’s crude oil, remains open and unrestricted.
According to Qatari authorities, the missiles were successfully intercepted and no casualties were reported. Rebecca Babin, senior trader at CIBC Private Wealth Group, pointed out that Iran’s action seems to have a symbolic rather than an operational character, which reinforces the reading of a temporary de-escalation. There is even speculation that the United States would have been warned in advance.
Trump calls for accelerated drilling
The moderate Iranian response was followed by a message from President Donald Trump, who urged the Department of Energy to facilitate new crude oil drilling. Chris Wright, Secretary of Energy, confirmed that work is already underway. This pro-production stance has helped to increase expected supply and, consequently, to put further downward pressure on prices.
Although transit through the Strait of Hormuz continues without interruption, the risk of an eventual escalation persists. Some supertankers even diverted their route pre-emptively before resuming their passage without incident. This maritime corridor, located between Iran and Oman, is vital for the global trade in oilOne-fifth of the world’s oil production transits through this corridor.
Despite the spike in tensions, industry data show that Iranian crude oil exports have increased rather than decreased. This indicates that Tehran, for the time being, is not willing to sacrifice its source of oil revenues, reinforcing the expectation of relative stability in the short term.
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Source: El Financiero
Photo: shutterstock
