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Elnur Enveroglu

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The conflict factor has now become the main subject that most sharply affects the wheel of the world economy. To briefly analyse this, it is enough to consider the Russia-Ukraine war or the ongoing crisis in the Middle East, which has a greater impact on the power dynamics of the world economy.

The Israeli-Palestinian war began in early October 2023, but the conflict quickly spread and began to cover a wider area than expected. The sparkle of war, which intensified, especially because of the influence of external forces, became more tangible with its negative effects on the world economy.

World oil prices have started to fluctuate more rapidly in the last two months. Oil experts' forecasts even emphasize that 2025 will be marked as a year of more inflation. While in September of this year, the price of a barrel of oil in the world market was around $70/75 USD, today the price of a barrel of oil is already dashing towards $90 USD.

Investors have high stakes in Persian Gulf

The conflict and tension that has begun to spread in the Middle East has already begun to spread to the Persian Gulf. The exchange in missile attacks between Iran and Israel in the past few months have already forced official Tehran to switch to self-defence mode. It is no secret that Iran partially controls the Strait of Hormuz, which provides 20% of the world's oil exports, along with the Gulf countries. Its share of the Persian Gulf also includes the island of Kharg, the largest oil terminal in the area. So what is Iran afraid of?

Israel's missile strikes have awakened Iran to greater caution. The situation in the Gulf has already begun to change when Tel Aviv announced it would target the Kharg oil facility.

The importance of the island

Kahrg Island is located in the Persian Gulf, between Kuwait and Iran – literally, 25 km off the coast of Iran. The island's capacity to export approximately 1.7 million barrels of oil to the world per day makes its importance even more significant. Yes, Iran exports tons of oil to the world from this very terminal every day, and this is the object of interest of hundreds of investors.

Israel's intention to target the Kharg oil facility not only alarmed investors but also caused Iran to narrow down all opportunities in the Strait of Hormuz tightening security measures. Now narrowed like a bottleneck, the Strait of Hormuz creates serious problems for the passage of ships. Iran says it is doing this as a precautionary measure, but the global oil market does not rule out the possibility of cosmic prices for oil on the other hand.

For example, it is estimated that the price of a barrel of oil will rise to $147. According to calculations, if the Strait of Hormuz, which provides 20% of the world's oil flow, remains closed for a long time, this figure, although looks more like a fantasy, may one day become a reality.

But there is another factor here - the US elections and the cold attitude of the President-elect Republican Donald Trump towards oil from the Middle East. Currently awaiting his inauguration, Trump is considering serious measures in this regard.

Middle East security under question as Trump signals red light to Gulf States' oil

Donald Trump's rise to power has also given rise to a variety of opinions about his views on the Middle East. Trump's previous speeches have also emphasized the need to abandon Middle Eastern oil. Although many critics call this a radical approach, it once again demonstrates the logical consistency of the US abandoning the oil of the Gulf States for some reasons.

Trump said the following in a post on his X (formerly Twitter) back in 2020: “Because we have done so well with Energy over the last few years, we are a net Energy Exporter, & now the Number One Energy Producer in the World. We don’t need Middle Eastern Oil & Gas, & in fact have very few tankers there…”

Trump is trying to emphasize the importance of reducing his country’s dependence on the oil potential of the Gulf States. He believes that the United States' stay in the Middle East is costly for his country, given the rise of the ongoing conflict in the region.

One of the reasons Trump wants to distance himself from the Middle East may also be Iran. Donald Trump has once been criticized by the Gulf States for the US’ lack of response to Iran's shooting down of US drones off the coast of the UAE and its attacks on US facilities in Iraq. It was said that the US was inadequate in ensuring security in the Gulf. However, according to Trump, this attack was not a provocation against the US, but against the Arab states; and most importantly, according to Donald Trump, the prevention of this threat by the US cannot be without reciprocity.

Thus, Trump's coming to power will also usher in a new era in the global oil market. Donald Trump stands firm on his claim of about 5 years ago that "the United States is self-sufficient in its own resources." Although the United States produced only 18 million barrels per day at that time, 2% less than its consumption, today the United States is more optimistic about its own production. It is likely that the decisions that the United States will make in the near future will not go unnoticed by global oil prices, and the increasing rate of inflation is obvious.