Israel-Iran war highlights Mideast's declining influence on oil prices

LONDON (Reuters) – The contained move in oil prices during the Israel-Iran war highlights the increasing efficiency of energy markets and fundamental changes to global crude supply, suggesting that Middle East politics will no longer be the dominant force in oil markets they once were.

The jump in oil prices following Israel's surprise attack on Iran was meaningful but relatively modest considering the high stakes involved in the conflict between the Middle East rivals.

Benchmark Brent crude prices, often considered a gauge for geopolitical risk, rose from below $70 a barrel on June 12, the day before Israel’s initial attack, to a peak of $81.40 on June 23 following the United States' strikes on Iranian nuclear facilities.

Prices, however, dropped sharply that same day after it became clear Iran’s retaliation against Washington – a well-telegraphed attack on a US military base in Qatar that caused limited damage – was essentially an act of de-escalation. Prices then fell to below pre-war levels at $67 on Tuesday after US President Donald Trump announced that Israel and Iran had agreed to a ceasefire.

The doomsday scenario for energy markets – Iran blocking the Strait of Hormuz, through which nearly 20% of the world’s oil and gas supplies pass – did not occur. In fact, there was almost no disruption to flows out of the Middle East throughout the duration of the conflict.

So, for the time being, it looks like markets were right not to panic.