Chart of the Week

Rising tensions in the Middle East have investors concerned about how high crude oil prices could go. It is a legitimate concern as roughly 20 million barrels of crude oil per day — that is, 20% of daily global demand — move through the Strait of Hormuz (located between Iran and Oman), making it a crucial choke point for global oil trade.

In the days following Iran’s attack on Israel, crude oil prices barely budged as markets had already priced in much of this anticipated risk leading up to the strike. However, as seen in the chart above, no two crisis events have been the same — prices spiked 75% in the two months after the Gulf War but fell 18.5% in the two months after the U.S.S. Cole bombing. We have noticed, though, that events posing a direct risk to oil supply have typically had the biggest effect on prices.

So far, oil prices have been tame. However, given Iran’s proximity to the Strait of Hormuz, risks of supply disruptions remain along with the risk of prices moving higher if the conflict escalates. This uncertainty and risk premium is one reason we remain favorable on commodities and energy.

• Gulf War
  • 8/2/1990
  • 2/2/1990 – 1/29/1991

• War in Afghanistan
  • 10/7/2001
  • 4/11/2001 – 4/4/2002

• India, Israel, and Lebanon bombings
  • 7/11/2006
  • 1/12/2006 – 1/8/2007

• U.S.S. Cole bombing
  • 10/12/2000
  • 4/13/2000 – 4/11/2001

• Arab Spring
  • 12/18/2010
  • 6/21/2010 – 6/22/2011

• Lebanon crisis
  • 5/7/2008
  • 11/2/2007 – 11/4/2008

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