In 2008, the world feared that oil prices could increase to as much as US$ 200 per barrel. Demand was expected to continue to grow and new sources of supply were not known to the world.
For years, the logic for oil price has been simple. They are determined by the factors of demand and supply. Bulk of the oil reserves are in the Middle East and in a handful of other countries like Russia, Venezuela, etc. Any event or a happening that results in or could result in reduction in production in the Middle East would lead to an increase in oil prices.
For years, the large oil exporting countries increased/ decreased production to ensure that prices stayed high. These high prices acted as an incentive for oil companies in other countries to try and find oil.
Given the history of oil prices and the importance of Middle East, it was natural to expect that political domination of Middle East by ISIS could send the crude oil prices to the moon. To access the impact of ISIS on oil prices, oil prices were plotted against the important landmarks of ISIS.
ISIS fighters have captured the Jazal oil field after intense clashes with government forces in the central province of Homs.
ISIS fighters control many of Syria’s oil fields that are mostly in the eastern region bordering Iraq. Before being captured, these fields could produce half a million barrels of oil per day. However, it is not known as to how much oil is being produced and what price does ISIS earn by smuggling this oil into the world markets.
The main cause behind the decrease in oil price is not declining demand but the rising supply. The dramatic expansion of shale extraction in the U.S. has helped the world and in its own way dented the power of ISIS by reducing prices. With global shale deposits apparently exceeding the equivalent of Saudi Arabia’s entire oil deposits, it was only a matter of time until technology and entrepreneurship would allow the energy industry to tap into this resource.
Less than two decades after the American industry began extracting it, shale accounts for nearly half of U.S. gas consumption, as drilling abounds in Texas and Dakota while the U.S. produces one tenth of the world’s oil and looms as a net exporter of oil. Other countries with great shale deposits, most notably China, may soon follow suit.
Does this mean that oil prices will stay low for a long time and ISIS will not be a threat to the global economy?
Iraq, Saudi Arabia, the Gulf States and Iraq account for a large part of oil production and are close to the ISIS controlled areas. These countries will be large producers for a long time to come. They are under the threat of the ISIS jihadists. If ISIS threatens their oil production, the world could possibly see an increase in oil prices.
(Tanya Gupta is a student of the Shriram School Aravali and is a NewsMobile Mobile Journalist)