Oil prices have started the week on a downward trajectory, driven by disappointment over China’s limited economic stimulus and continued market uncertainty following Donald Trump’s re-election.
Despite China’s top legislative body approving a $1.4 trillion package to help local governments manage their mounting debts, the lack of a broader fiscal stimulus failed to inspire confidence. Many analysts had hoped for a more substantial response to China’s struggling economy, which did not materialize. SPI Asset Management’s Stephen Innes described Beijing’s latest move as a “quick fix” rather than the comprehensive stimulus the markets had anticipated, which led to a negative market reaction.
By mid-afternoon Tuesday, Brent crude for January delivery had dropped to $72.11 per barrel, down from a high of $75.97 just days earlier, shortly after the U.S. presidential election.
Meanwhile, Trump’s re-election has shifted the global focus away from ongoing Middle East tensions. However, the conflict continues to escalate. On Sunday, Israeli airstrikes in northern Lebanon and Gaza killed at least 23 people, including seven children. In response, Saudi Arabia’s Crown Prince Mohammed bin Salman called for an immediate halt to Israel’s military actions and reiterated his support for Palestinian statehood during a summit of Arab and Muslim leaders in Riyadh.
The Trump administration’s stance on the Middle East, particularly its pro-Israel rhetoric and threats toward Iran, has raised concerns, especially in light of the renewed conflict. Iranian officials have urged Trump to reconsider his hardline policies against Tehran. “Trump must show that he is not following the wrong policies of the past,” said Iranian Vice President Mohammad Javad Zarif.
India, a major oil importer, is also deeply affected by these developments. India relies heavily on two critical maritime chokepoints—the Strait of Hormuz and the Malacca Strait—for its oil and natural gas imports. The Strait of Hormuz, which connects the Persian Gulf to the Gulf of Oman, is vital for global energy trade, as it handles over 85% of India’s oil imports and a significant portion of the world’s oil supply.
India’s dependence on these routes underscores their importance to global energy security. Any disruption, particularly in the Strait of Hormuz, would send shockwaves through the global oil market. India, which imports nearly half of its liquefied natural gas from Qatar, would face significant economic challenges if these key routes were blocked. For example, higher oil prices could push up the country’s inflation, with every $10 increase in crude prices potentially raising India’s Consumer Price Index by 0.5%.
Energy consultancy Clearview Energy Partners has warned that disruptions in the Strait of Hormuz could push oil prices up by $28 per barrel, with additional price hikes possible if Israel targets Iranian energy infrastructure or the U.S. and its allies impose sanctions on Iran.
The threat of Iranian action looms large, given its control of the Strait’s coastline and its military capabilities. Iran’s anti-shipping missile systems and the Islamic Revolutionary Guard Corps’ (IRGC) expertise in speedboat swarm attacks could potentially block this vital shipping lane, further escalating tensions in an already volatile region. As Trump’s administration continues, the situation remains fluid, and it’s unclear how Iran will respond to increasing pressure from Israel and the U.S.
The coming weeks will be crucial in determining how the conflict evolves and its impact on global oil markets.
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