The main reasons why Middle East geopolitics can move the oil
market are:
The Middle East has enormous proven oil reserves. This is
especially true of Saudi Arabia which has 297.5billion barrels of oil
reserves, accounting for 17.2% of the global total, and it produces
about 11.04 million barrels a day on average. The countries with
next three largest proven reserves are Iraq, Iran, and Kuwait with
145.0 billion, 157.8 billion and 101.5 billion barrels of oil reserves
respectively.
Secondly, the region produces and exports huge volumes of
crude oil, on which most of oil consuming countries are highly
dependent. According to OPEC’s January 2023 monthly report,
OPEC member countries in the Middle East had an average daily
crude oil output of 28.156 million barrels in 2022, which was nearly
88% of total OPEC production and about 31% of the total global
supply.
Thirdly, the region has considerable spare oil production capacity,
giving it a major in uence on global oil prices. Saudi Arabia,
the largest oil producer within OPEC and the world’s largest oil
exporter, has historically had the greatest spare capacity. It has
regularly wielded this spare capacity for in uence on the world
stage and has helped set oil prices. Thus, it’s been given the name
of the “central banker” of oil.
As such, any turmoil or social unrest in the Middle Eastern oil
producers will have a dramatic impact on the global oil market.
An example of this is the Libyan civil war in 2011 that brought the
nation’s 1.6 million barrels of daily output to a near complete halt
and drastically lifted the global oil price. In the ensuing months,
Saudi Arabia quickly ramped up its production to make up for
the Libyan supply disruption, playing a decisive role in taming
further price hikes around the world. Another example is the EU’s
announcement of sanctions on Iran in early 2012 which caused an
immediate spike in international oil prices.
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