How do geopolitical tensions influence global crude oil price fluctuations?

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Geopolitical Tensions Can Influence Global Crude Oil Prices Through Supply Disruption Fears

Geopolitical tensions, particularly those in West Asia, have influenced global crude oil prices by creating concerns over potential disruptions to supply routes. Reductions in these fears have led to oil prices returning to pre-conflict levels, as evidenced by US West Texas Intermediate (WTI) falling below US$70 per barrel and Brent trading just above US$73. The continued transit of oil tankers through the Strait of Hormuz, a critical route for approximately 20% of the world's petroleum supply, has played a significant role in calming anxieties about major supply shocks.
Easing Fears Stabilise Energy Markets

Concerns over potential disruptions to global energy supplies from West Asia have eased, contributing to the stabilisation of energy markets. This calming of fears, especially regarding the Strait of Hormuz, has improved market sentiment. Analysts attribute the current normalisation of oil prices to these reduced geopolitical disruption concerns.
Sustained Tensions Risk Energy Cost Surges

Prolonged geopolitical tensions carry the risk of triggering a sustained surge in energy costs, which could manifest as a "global shock" if crude prices spike and persist. Such an economic shock from a sudden and prolonged spike in crude oil prices would be damaging to the global economy.
Impact on Inflation and Central Bank Policy

Lower oil prices can moderate inflation by reducing transportation, logistics, and production costs across various industries. This moderation in inflation eases pressure on central banks worldwide, potentially reducing the urgency to maintain higher interest rates for extended periods. For Malaysia, cheaper crude and refined fuel imports can lower costs for refiners, transport operators, manufacturers, and consumers, helping to offset economic drag.

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How do geopolitical tensions influence global crude oil price fluctuations?

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