Energy markets show resilience as Middle East conflict spreads

Key takeaways:

• Oil prices continue to react to developments across the region, but the response has been volatile rather than a sustained surge, reflecting concern rather than panic.

• Both the US and Iran continue to signal an interest in diplomacy. A complete breakdown in negotiations would significantly increase concerns about the impact on global energy prices.

• Global energy markets are more resilient to Middle Eastern shocks than they were several decades ago, supported by a more diversified energy mix, broader sources of supply and changing consumption patterns.

• Additional production potential from countries such as Venezuela, alongside greater output ambitions from the UAE, could result in more oil supply than the market needs beyond the current conflict.

• Alternative pipelines have helped reduce reliance on the Strait of Hormuz, while Iraq is also exploring potential routes through neighbouring countries towards the Mediterranean.

• The Middle East remains relatively poorly interconnected despite hosting some of the world’s largest oil and gas producers. Greater infrastructure connectivity and regional cooperation could strengthen the resilience of both regional and global energy markets.