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Geopolitical Tensions Could Lead To Higher Oil Prices

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Time passes, but one thing remains the same: the world is getting hotter and hotter, not only in terms of temperature but also in terms of geopolitical tensions.

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Last week, in addition to new and less-than-optimistic developments in the Red Sea, Ecuador and the capital of Papua New Guinea became the focus of the press.

Starting with the South American country, there was a wave of violence by drug cartel members in response to the authorities’ attempt to impose order in the prisons.

On the positive side, the government appears to be making Bukele-style progress in regaining control. Moreover, the event will not affect the global economy on a large scale.

Moving on to Oceania, mass riots broke out in Port Moresby amid a police and military strike in the country, with looting, vandalism, and casualties among the population.

Again, markets were largely unaffected and are unlikely to be affected.

And finally, Yemen’s Houthis have taken action, attacking a US ship in the Red Sea with drones and rockets. Here, the situation is much more severe.

The fact that incidents continue despite the US Navy’s actions in the region raises fears of a protracted conflict with increasingly adverse consequences.

In particular, shipping companies are forced to seek alternative routes, resulting in delays and price increases.

The fact that US and British warships and aircraft carried out attacks on Houthi military targets in Yemen on Friday night does not help either.

In addition to increased instability in the region, oil supply could be affected, albeit in the short term, resulting in higher logistics costs and ultimately forcing the Fed to postpone cutting interest rates.

Not surprisingly, the dollar index has seen a reversal in trend since the beginning of the year.

Should we expect a definitive move towards $100 in oil prices?

Barring a serious confrontation between the U.S. and Iran, which could shut down the flow of oil from the Persian Gulf, the risk is low, which is why the gold price remains somewhat calm.

It should be borne in mind that military conflicts risk further slowing down the economy and, consequently, impacting fuel demand.

It should also be noted that the world is not the same as it was 20 years ago.

The United States, once an importer of oil and oil products at 13 million barrels per day, has become a significant exporter, with more than 2 million barrels per day expected by 2023.

In summary, we cannot completely ignore the deteriorating geopolitical situation, but the reality is a bit more complex than one might initially think.

 

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