How do conflicts in the Middle East affect the price of oil in Asia?

The Middle East plays a strategic role in the global oil market and is home to some of the largest producers of the commodity, such as Saudi Arabia, Iran and Iraq. However, it is also a region marked by geopolitical instability.

Recent conflicts in oil-producing areas of the Middle East have raised concerns about the impact of these events on global supply and prices. Asia, in particular, is one of the regions most affected by these conflicts due to its heavy reliance on oil imports from the region.

In this context, we invited expert Victor Arduin, Hedgepoint’s energy and macroeconomic analyst, to explain how this situation is affecting the oil market in Asia. Check out the key points the expert makes below and enjoy the read.

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The Middle East and the oil market

Some of the main countries involved in geopolitical conflicts in modern history are members of the Organization of Petroleum Exporting Countries (OPEC). The institution seeks to regulate the global oil market and ensure more stable prices for the commodity.

Iran’s influence on oil prices

Iran was OPEC’s fourth largest crude oil producer in 2023. According to the International Energy Agency (IEA), the country has the third largest proven oil reserves in the world, with 12% of the total, while its reserves in the Middle East account for 24%. Brazil produces about 3 million barrels of oil, reaching 4 million barrels with other liquids. See the country’s production data compared to other countries:

Source: EIA

“The expectation is that an escalation could affect the oil trade, which could affect supply and drive up the price of energy commodities,” Arduin explains.

Supply routes to Asia

The Hedgepoint expert also points to the impact of conflicts in the Middle East on oil supply routes to Asia. According to him, “the flow of oil destined for Asian countries goes through the Middle East. Therefore, any disruption in this logistical route has an immediate impact on the price of barrels arriving there.

The Strait of Hormuz, for example, is one of the main routes for Asian oil. Approximately 20 to 30 million barrels pass through this route every day, representing 21% of the oil traded worldwide. If Iran disrupts this passage, the continent could suffer from reduced supply.

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Economic sanctions against countries in conflict

According to Arduin, the world’s major economies have imposed economic sanctions on countries in conflict, particularly Iran. The goal is to limit their support for the groups involved and to curb their involvement in the actions.

According to the US Energy Information Administration (EIA), China is the world’s second largest consumer of oil. The expert reports that the Asian nation is heavily dependent on imports of the commodity from the Middle East.

“China absorbs a large part of the sanctioned supply from Iran, mainly because it is cheaper. The Asian nation does not comply with these sanctions imposed by the West,” the expert adds.

Arduin also points out that US sanctions were a recurring theme in the US elections. The current administration avoided imposing new sanctions in order not to affect oil production in the Middle East and influence a rise in prices.

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The impact of conflicts on oil prices in Asia

Due to Iran’s importance in the oil market, conflicts involving the country have affected the price of the product internationally. In October 2024, the price of a barrel rose by more than 5% on global markets after the country engaged in new clashes with Israel.

In anticipation of Israeli retaliation, oil futures continued to rise. According to S&P Global, NYMEX’s December WTI (West Texas Intermediate – a benchmark for oil prices on the exchange) closed at $71.78 per barrel at the end of October, up $1.59. ICE’s December Brent rose $1.67 to $76.05 per barrel.

“Oil prices spike when tensions rise, but they also fall when things cool down. That’s what we saw in October: oil reached almost $80 and then fell back to the $70s,” Arduin adds.

Meanwhile, Saudi Arabia has been raising prices for Asian buyers to cover market risks and volatility. In October, the country’s state-owned producer raised the official selling price of its main type of crude by 90 cents, mainly for Asian buyers. At the same time, the company lowered the price for the United States and Europe.

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The expert also emphasizes that OPEC has reduced production to support oil prices, although the organization had predicted an increase in production from October to December.

“With geopolitical conflicts, this increase in supply is not happening. This is also putting pressure on oil prices,” says Arduin.

China is one of the Asian countries most affected by rising prices, as it is the world’s largest oil importer. “China has been using inventories as a buffer in the short term and investing in renewable energy to reduce its dependence on Middle Eastern oil in the long term,” Arduin concluded.

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How to protect against volatility in the global energy market

In this volatile scenario, hedging tools become essential for companies that want to protect themselves from oil price fluctuations. According to Arduin, hedging is essential to minimize the impact of volatility.

Learn more about how you can protect your business from energy market risks! Contact Hedgepoint to speak with an expert.

Disclaimer

This document has been prepared by Hedgepoint Global Markets LLC and its affiliates (“HPGM”) solely for informational and instructional purposes and is not intended to establish obligations or commitments to third parties, nor is it intended to promote an offer, or the solicitation of an offer, to buy or sell any securities, futures, options, currencies and swaps or investment products. Hedgepoint Commodities LLC (“HPC”), a wholly owned entity of HPGM, is an Introducing Broker and a registered member of the National Futures Association. Trading futures, options, currencies and swaps involves significant risk of loss and may not be suitable for all investors. Past performance is not necessarily indicative of future results. Hedgepoint clients should rely on their own independent judgment and that of external advisors before entering into any transaction that is introduced by the company. HPGM and its associates expressly disclaim any liability for any use of the information contained herein that results directly or indirectly in damages of any kind. In case of questions not resolved by our customer service team ([email protected]), please contact our internal ombudsman channel ([email protected]) or 0800-878 8408/[email protected] (only for customers in Brazil).