Oil is the dog that has not barked since the Middle East blew up. If Iran had launched a full-blown missile strike at Israel at any earlier time in the last half century, the price of crude would be spiralling into the danger zone.

This strange calm may be because the world has yet to grasp the enormity of what is happening. Markets traded contentedly all through July 1914 after the Sarajevo assassination, sceptical because Europe’s great powers had gone to the brink so many times before and each occasion proved a false alarm. It was only after Austria’s ultimatum to Serbia that they began to discern an unstoppable chain-reaction.

Nevertheless, it is remarkable that crude is still trading close to a three-year low days after Israel decapitated the leadership of Hezbollah, prompting Iran’s Revolutionary Guards to sweep aside the more dovish Pezeshkian government and set off what is a regional conflagration.

Brent futures have only nudged up and cannot seem to break through $78 (£59.46) a barrel. Saudi Arabia has even warned over recent days that prices could drop to $50. This compares to $120 in mid-2022 after Russia’s invasion of Ukraine or $148 in mid-2008 at the peak of the China boom – roughly $216 in today’s money.


The immediate and banal explanation for this insouciance is that Canada, Guyana, Brazil, and America’s shale frackers are adding supply faster than a becalmed world economy can absorb it. Global manufacturing is in a deep recession. Combustion vehicles make up less than half of new car sales in China.

The Opec-Russia cartel has been withholding 3m barrels a day (b/d) in a failed attempt to lift prices to the Saudi target of $100, the break-even fiscal level needed to fund the ambitions of Prince Mohammed bin Salman. This policy has ceded market share to non-Opec rivals at a galloping pace.

The Saudis have finally lost patience – irritated by cheating by Iraq and Kazakhstan – and are planning to lift output by 1m b/d in stages starting in December. But there are ever louder hints that Saudi Arabia may go further and open the floodgates to punish free-riders.

“The market vividly remembers the effect of Saudi’s two price wars in 2016 and 2020,” said Francisco Blanch from Bank of America. Speculators have net shorts of -34m barrels on the CFTC hub, the most extreme position since 2011. This bearishness is doubled-edged, of course. The short-covering recoil could be ferocious if they get it wrong.

The deeper geostrategic reason for the calm is that Iran can no longer plausibly threaten to set off energy mayhem if it is attacked, because such a crisis would hurt its big friend far more than it hurts its big enemy.

The Israeli press reports that Benjamin Netanyahu is mulling major strikes on Iranian oil infrastructure and port facilities in order to cut off the export revenues that fund the Ayatollah’s network of proxy armies across the Middle East. This is a more likely target than Iran’s nuclear sites after the clear veto by the White House. Not even Netanyahu would dare cross that line.

Iran’s hardliners have in the past threatened to block the Strait of Hormuz – easier said than done – and cut off a fifth of the world’s seaborne crude supply should their own oil assets ever come under attack.

This long-standing deterrence strategy is no longer credible.


China is today the world’s biggest importer of crude by far. It takes the lion’s share of shipments through the Strait, and while China and Iran are not formal allies, they are de facto confederates in the anti-Western league of autocracies.

Kimberly Donovan from the Atlantic Council says China is fully complicit in the use of a “dark fleet” tankers to evade Western oil sanctions against Iran. Chinese teapot refineries have been soaking up almost 90pc of Iran’s sanctioned oil, conducting the trade in renminbi through obscure banks to evade the international dollar payments system.

This is keeping Iran’s economy afloat and enables it to sustain its ring of fire around Israel, from Hamas, to Hezbollah, to the Houthis in Yemen, and Alawites in Syria and the Shia militia in Iraq. Iranian oil output has doubled since 2019. Exports have jumped to 2m b/d from almost nothing. The revenue covers 70pc of the Iranian budget.

At the other extreme, the US no longer requires any oil from the region, though it buys some heavy Arabian crude when the price is right to mix with its own light-sweet variant for refineries.

America has gone from acute dependence on energy imports in 2008 to become the world’s biggest producer of oil and gas by a wide margin, thanks to fracking technology and deep capital markets. It became a net exporter in 2020 for the first time since 1949. US crude output has reached an all-time high of 13.3m b/d and is heading for 14m b/d next year.


Any move by Iran to disrupt oil supply would highlight this astonishing shift in the global balance of energy power. Which is not to say that America could today shrug off a global oil crisis. The US economy would be hit through multiple channels as the rest of us would be.

Democrats are terrified of a pre-election spike in petrol prices. Americans drive twice as far as Britons or Germans and their cars need 50pc more fuel per mile. Average prices at the pump have dropped to $3.18 from over $5 two years ago, but are still far above pre-pandemic levels. Kamala Harris’s fortunes depend to an extraordinary degree on what happens to this one price over the next four weeks.

Joe Biden has left her precariously exposed by halving the US strategic petroleum reserve (SPR) over the last two years to 383m barrels – or 19 days’ cover. He ordered the largest release ever after the invasion of Ukraine but then continued to flood the market through 2022 long after it was no longer necessary, suppressing prices long enough to help his party in the midterm elections.


“We urge you, in the strongest terms, to put this country’s energy security first and stop abusing the SPR for political purposes,” wrote the top Republicans on the House and Senate energy committees. Well, indeed.

However, the US will not run out of oil whatever happens because Washington will restrict oil exports if need be, in order to trap its own production inside the closed US economy and hold down prices. It has done so before.

The Middle East may still be America’s political problem. But these days, it is China’s energy supply problem. That entirely changes the geopolitical landscape.