The escalating US-Iran tension in the Middle East has begun to shake the world’s energy markets and the established structures of oil trade. The military activity in the region not only caused prices to rise rapidly, but also caused the global oil flow to be interrupted in the Strait of Hormuz, one of the most important energy routes in the world.
Tremor in Oil Trade and Prices
Shipments through the Strait of Hormuz have virtually stopped, meaning that around 20 percent of global oil supplies are disrupted. West Texas crude oil gained 3.4 percent in the last 24 hours, rising to $97.20. Experts state that if the conflicts continue, the barrel price may reach 150 dollars. Qatar’s energy minister has warned that conflicts in the Middle East could halt oil production in the Gulf within weeks, with serious consequences for the global economy.
At the same time, it is reported that the USA has deployed additional military units in the region and is working on possible land operation options in Iran. The current risk environment magnifies the uncertainties in the market.
Another noteworthy element was the expectations for change in how oil would be traded and in which currency, going beyond military developments.
Oil Trading Initiative with Yuan is on the Table
It has been reported that Iran is negotiating with some major oil importing states, including Japan, about allowing limited tanker passage through Hormuz and conducting this trade in China’s currency, yuan. The introduction of this mechanism may provide countries with the opportunity to continue their energy imports by bypassing the US financial system.
The oil market has long operated on the petrodollar system, which is based mainly on the US dollar. The acceptance of major importers’ offer to pay in yuan will indicate a transformation process that will fundamentally shake this structure.
With such a step, China will be the country that will achieve the most remarkable gains. Energy payments made in Yuan will increase the weight of the Beijing administration on pricing and payment systems and strengthen China’s influential role in global energy diplomacy.
It is reported that with the implementation of this new model, supply will be provided more easily or on a priority basis for some countries, and the possibility of the formation of some kind of privileged supply blocks will come to the fore. On the other hand, countries closer to US policies may remain distant from this system, thus a bi-directional, fragmented structure may emerge in the global market.
War Impact Deepens; New Financial Order is being Discussed
While Yuan-based oil trade plans attract attention, military developments still stand out as the main determinant of price movements in the short term. Iran’s attacks on energy facilities in countries such as Qatar, Kuwait and Bahrain are increasing the destruction in the region. In addition, the Iranian administration announced that in the event of a counter-attack from the USA, the sea water desalination facilities, which meet the majority of the drinking water needs of Kuwait and Saudi Arabia, could be targeted.
On the other hand, rocket attacks against Israeli cities and ongoing retaliation attempts strengthen the possibility of the conflicts spreading to a regional level. According to Reuters, many people, including children, were injured as a result of the ballistic missiles fired by Iran.
US President Donald Trump gave Iran 48 hours to reopen the Strait of Hormuz and stated that otherwise Iran’s energy infrastructure will be targeted. It is considered that the ongoing tension in the region and the change in commercial currency preferences have created an unprecedented turning point in the market.
