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As tensions between two of the world's most critical oil nations escalate, the big question is how the Saudi-Iran conflict will affect oil in 2016.
The unrest began over the weekend when Saudi Arabia executed Nimr al-Nimr, a popular Shiite cleric involved in the country's uprising during the Arab Spring. His death sparked protests among the minority Shiite population of Saudi Arabia and led the two countries to sever all diplomatic ties.
The Saudi-Iran conflict worried oil investors yesterday (Monday) and caused prices to whipsaw. After shooting up 4% in early trading, WTI crude oil prices fell 0.8% to close at $36.76. Brent crude oil prices – the global benchmark – ticked down 0.2% to settle at $37.22.
Now, Money Morning Global Energy Strategist Dr. Kent Moors says there are a number of reasons why the Saudi-Iran conflict will continue to influence oil prices.
One reason is the tension in the Strait of Hormuz, which is the world's most strategically important oil chokepoint. Roughly 20% of the world's oil passes through the waterway every day.
Since Iran sits on the strait's north coast, the country's military is expected to pressure the waterway in order to prevent Saudi oil exports from passing through. That means about 81% of Saudi Arabia's total revenue is currently at the mercy of the Iranian military.
But Moors appeared on CNBC to warn investors of the most serious factor that will continue to affect prices as the conflict unfolds. In fact, this "flashpoint" could spark full-blown chaos in Saudi Arabia's most significant oil-producing region and change the dynamics of the Middle Eastern oil market…
One Flashpoint Dictates How the Saudi-Iran Conflict Will Affect Oil in 2016
Alex McGuire is an associate editor for Money Morning who writes about energy. Follow him on Twitter for all the biggest oil and gas updates.
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