Journalists and financial markets see the world differently.
The biggest news story of the day is, by far, Iran’s attack on Israel: a salvo of 181 missiles streaking through the sky, sending millions into bomb shelters. Jerusalem is now fighting in Gaza, in Lebanon, striking Yemen, and preparing for a response to Tehran. Tension is ratcheting up, and the Middle East looks like a tinderbox.
For financial markets, the result of the last 24 hours has been a 6pc rise in the benchmark price of oil, taking it to heights not seen since … August – and still well below its April peak.
On the face of it, this seems bizarre. We know that oil supply and oil demand are highly inelastic: it’s hard to ramp up new sources of production quickly, and it’s hard for consumers to substitute it out for an alternative fuel. We also know that this makes oil prices highly volatile: because nobody can easily change course, huge price movements are needed to bring supply and demand back in line.
When Russia invaded Ukraine, for instance, there was concern that supply to world markets might drop by as much as 3pc. The result? Oil prices rose by 30pc in a matter of days, before settling down over the course of a year. This isn’t out of line with what we’d expect to see generally, with some estimates finding that a 1pc increase in prices leads to a roughly 0.1pc increase in supply, or a similar decrease in demand.
Tehran’s attack on Israel has the potential – mark that word – to be significantly more disruptive. Iran accounts for roughly 4pc of world oil production, or 2pc of the global export market. If Israel were to respond by striking at the chokepoints for Iran’s oil industry – the Kharg oil terminal, for instance, which handles some 90pc of Tehran’s exports – then there would be a corresponding reduction in global supply and a much larger rise in prices.
Then there’s the risk of regional escalation. The equivalent of a little over 20pc of the world’s petroleum consumption flows through the Strait of Hormuz, making it a major chokepoint for the global oil trade.
If Iran and Israel were to end up exchanging further blows, it wouldn’t be surprising to see disruption to shipping. Tehran has form when it comes to seizing tankers to prove a point, and has actively assisted the Houthis in their efforts in the Red Sea.