Oil prices have soared almost 20% following two attacks on processing plants in Saudi Arabia.
Brent crude rose as high as $71.95 a barrel on Monday after the attack, which the US has blamed on Iran, wiped out over 5% of the world’s total oil supply.
Prices settled down following the initial spike, with brent crude correcting to around the $66 a barrel mark.
Saudi Arabia has recently affirmed its commitment to control oil prices by avoiding global oversupply alongside fellow oil exporting countries as part of the Opec-Plus deal.
Head of research at Kingswood, Rupert Thompson, has commented that the impact on markets should be limited owing to the broader picture in the oil industry.
“Before the attack, all the talk was of looming over-supply of oil. Even after its jump,. the Brent oil price at $66 a barrel is only back close to the middle of the last year’s trading range.”
Thompson adds that the impact could be more severe if the attack prompts an escalation in hostilities between Iran and US-backed Saudi Arabia.
Europe, along with other Asian-importing countries, is likely to be more adversely affected by higher oil prices than the USA, which could lead to tensions at the worst possible time.
“Asian oil-importing countries face yet another possible tax…higher oil prices,” says Artur Baluszynski, head of research at Henderson Rowe says.
“Strong USD combined with higher energy prices could derail the already weakened global economy.
“The US has access to its own production and can always tap into Canada’s supply, Europe has always been at the mercy of Russia and the Middle East.”
Baluszynski adds any disruption to the oil market affecting Europe will be net positive for the continent’s efforts in sustainable and more ESG-friendly sources of energy.
“In the short term Europe will feel the pain of higher energy prices, but in the long term more expensive fossil fuels will accelerate Europe’s already leading position in renewables like wind and solar.”