Is the easing of Middle East tensions heating up, and has this round of "oil crisis" come to an end?

Ask AI · What lessons do the patterns of the first three oil crises offer for current oil prices?

The tense situation in the Middle East has lasted about a month, and signs of easing have finally appeared. Once a ceasefire in the Middle East is achieved, it will mean the Strait of Hormuz will reopen, and the global shipping order and energy supply will return to normal levels.

Under the influence of signals of easing in the Middle East situation, international oil prices have begun to peak and fall back, with prices dropping below $100 during trading. While oil prices plummet, global stock markets have surged significantly, recovering some of their previous losses.

Oil prices fall sharply, stock markets rise sharply. From the perspective of market funds, there is more concern about a series of chain reactions triggered by sustained “high oil prices.” On the other hand, if this “high oil price” phenomenon persists for a longer period, it could exert substantial inflationary pressure on the global market, which would in turn impact the global monetary and fiscal environment to varying degrees.

This recent surge in oil prices caused by the Middle East situation can be called the fourth global “oil crisis.” From the first three “oil crises,” we can also observe some patterns.

In the first oil crisis, due to OPEC’s oil embargo on certain countries and regions, international oil prices rose sharply. Specifically, prices jumped from about $3 before the embargo to around $13 at their peak, an increase of roughly four times. Later, the embargo was gradually lifted, but the subsequent impact on the global economy remained significant.

In the second oil crisis, influenced by the Iran-Iraq war, global crude oil production declined sharply, leading to sustained tension in energy supply and demand. As a result, international oil prices soared from around $13 to about $42, an increase of approximately three times.

In the third oil crisis, also affected by geopolitical tensions, international oil prices surged from $14 to $42. Subsequently, the IEA coordinated the release of strategic oil reserves, and several major oil-producing countries rapidly increased production, causing oil prices to fall quickly.

Compared to the first two crises, the third crisis was shorter in duration, and the high oil prices were resolved within a relatively short period.

From the first three oil crises, we find that the average increase in oil prices from the low point to the high point is about threefold. When the cumulative increase exceeds three times, it often indicates that oil prices are entering a phase of top formation. Meanwhile, the key factor behind the sharp rise in oil prices in these crises has always been geopolitical tensions causing supply-demand tightness, with persistent imbalance being the core reason for the price surge.

In this recent oil crisis, although the international oil price has not yet reached a threefold increase since the low point, various signs indicate that the price may have already shown signs of topping out. Once the Strait of Hormuz reopens and the Middle East situation is substantially eased, the underlying logic for further price increases will be challenged.

Oil prices above $100 are unfavorable for the U.S. to curb inflation. If U.S. inflation shows signs of rising rapidly again, the likelihood of the Federal Reserve continuing to cut interest rates will approach zero. Next, the U.S. will face the midterm elections. Maintaining high oil prices is not conducive to the U.S. economy’s development. From a certain perspective, pushing oil prices down below $80 and accelerating the reopening of the Strait of Hormuz aligns more with U.S. core interests.

Next, three key variables will influence the direction of international oil prices: the easing expectations of the Middle East situation, whether the Strait of Hormuz reopens, and whether major oil-producing countries halt production cuts. As long as any two of these variables improve significantly, the high oil price phenomenon is likely to cool down markedly, and prices may accelerate their decline toward a reasonable level.

Author’s statement: Personal opinion, for reference only.