International politics continues to affect the price of oil. Though it is unlikely that a long-term climb in oil prices is in the works, recent events are expected to create a short-term spike in oil prices, according to analysts at RBC Dain Rauscher Inc.
Much of the volatility stems from events in the Middle East. A series of suicide bombings carried out by Palestinians was followed by an all-out Israeli attack that now threatens to draw in Lebanon, Israel's northern neighbor. And true to form, the sustained hostilities have raised the ire of other countries in the region, many of which supply oil to the US. This situation has raised already elevated US concerns about the security of its oil supply.
Last week, Iran threatened to use oil as a weapon to influence US involvement in the recent escalation of hostilities in Israel. While Kuwait and Saudi Arabia publicly announced they would not participate in an oil embargo, Iraq, historically Iran's staunchest enemy in the region, put words into action. On Monday, April 8, Iraq announced that it would protest Israeli occupation of Palestinian territory with a 30-day oil embargo. Even without the participation of other countries in the region, the Iraqi embargo will further raise already rising oil prices in the short term.
Other significant factors affecting oil prices are coming from outside the Middle East. In-fighting at Petroleos de Venezuela SA (PDVSA) has severely interrupted Venezuelan oil exports, and the situation is far from being over. Seven executives who were reportedly behind recent strikes have been fired, and 12 others went into early retirement. Venezuelan President Hugo Chavez has threatened to fire additional employees if they continue to lead protests against what they have publicly identified as government meddling. The original protest was sparked by upper management appointments made by Chavez that placed individuals who strongly support his government in key positions at PDVSA.
The work interruption has brought crude oil and refined product exports to a standstill, and continued dissent will contribute to the spike in the price of oil in the short term.
