Recent decreases in the price of oil relate to geopolitical regional events, especially calmer waters with regard to Iran, writes Ibrahim Nafie Over the last few days, oil prices have undergone significant fluctuations despite their general trend of decreasing. After a barrel of West Texas oil registered at a record price of $78.40 on 14 July following Israel's attack on Lebanon, the price again decreased to less than $60 at the beginning of last week. This is the largest and fastest decrease in price recorded in more than 15 years. Prices now are at the lowest level they have been at for nearly six months. Thus, despite fluctuations, the general price trend is to decrease, a direction I believe will continue for some time, all other things being equal. The reason is that true global supply has for some time been higher than demand in oil-consuming states, with evidence provided by the significant increase realised in the stores of primary oil-consuming states, the United States, Western European countries, China and Japan. The fact is that what has pulled prices up in recent years has been a number of geopolitical factors that coincided with a time of tension in the global market due to the lack of a productive energy surplus in primary oil-producing states. At the head of these geopolitical factors was the security and political crisis in some oil-producing and exporting states, such as Iraq and Nigeria. The lack of security and stability in Iraq has led to a decrease in the scope of production and export to the extent that three and a half years after American forces invaded the country, levels of production remain less than prior to the invasion. This is true even though at the time the country was under international sanctions and was exporting oil under the Oil for Food Programme directly supervised by the UN. Although the reasons behind Nigeria's case differ, the similarity with Iraq is great. It is estimated that the country lost approximately 800,000 barrels from its daily production due to the attacks of rebels in the Niger River delta on oil installations and their workers. In addition to all this, the dispute between the West and Iran over Tehran's nuclear programme increased anxiety in global markets. This anxiety was not only related to the likelihood of the global energy market losing Iranian exports if US military strikes were authorised or sanctions imposed. The fear was that Iran would close the Hormuz Strait, through which more than 17 million barrels of oil pass daily. This would place the world in an extremely difficult situation, and, if implemented, would take prices to levels unprecedented since the discovery of oil. The truth is that Iran did not leave much room for analysis and interpretation on this front, for in addition to openly threatening the possibility of closing the strait, a number of land and naval manoeuvres conducted in April clearly indicated readiness to act with force. With the outbreak of the war between Israel and Hizbullah, prices rose to unprecedented levels with those working in energy markets interpreting the war as a proxy war between Iran and the US. The frequency and audibility of American threats towards Iran rose, especially as this coincided with Iran delaying its response to a bundle of European incentives for Tehran to halt its uranium enrichment activities. This all led everyone to expect a deteriorating situation in the region that contains nearly two-thirds of global oil reserves and is the largest producer and exporter to global oil markets. It is natural that all of the factors above continuously supported the activity of market speculators. This speculation has come to a large degree to depend not on researching future levels of supply and demand but on the speculators' reading of global events from a perspective of consequent effects on prices. The recent rapid decrease of prices is logical in light of the de-escalation of the Iranian nuclear file following Israel's military defeat in Lebanon. European states continue to negotiate the Iranian nuclear issue and for the time being the US is forced to go along. Calm and stability in the global oil market won out, and with this stability prices could fall as expectations of demand returned to normal.
