Jerusalem, the changing of the world order and the impact for oil

Most analysts see oil stabilising in a range of around $40 to $60 a barrel for 2018. However, most of these assessments were before the announcement to move the US’ Israeli embassy from Tel Aviv to Jerusalem.

Which begs the question of what impact, if any, will be there be to the current assessments of oil prices?

From a uni-polar to a multi-polar world

The US’ move to recognise Jerusalem as the capital of Israel, effectively putting an end to the two state solution, should be seen in the context of a transition from a uni-polar world to a multi-polar one.

The rise of China and resurgence of the Russian Federation has challenged the US policy of being the regional power in every region. This is causing a realignment in regional balances of power.

This is particularly evident in the Middle east. The US invasion of Iraq in 2003 removed a key opponent of Iran allowing its influence to grow.

Russia’s intervention in Syria and Turkey’s pivot to the region has further shifted the balance.

Turkey’s cooling of relations with the US has meant the number of reliable US allies in the region is diminishing.

China, while more active in the region, is starting from a relatively low base.

Narrowing base of reliable allies

The result is twin pressures for the US. Firstly, the necessity to push back against against rivals, in particular Iran.

Secondly an over reliance on a narrowing base of reliable allies, in this case Israel and Saudi Arabia, is pushing the US to defer much more to their interests.

This is the case with the decision (also coinciding with Trump’s domestic agenda) to move the US embassy to Jerusalem and the green light given to Saudi Arabia in its action against its GCC partner Qatar.

What may look like poor policy decisions, which they are, are on closer examination driven by a defence of strategic interests.

A volatile outlook

But with the inexperienced leaderships of the US and Saudi Arabia, conflicts resulting from miscalculation are more probable.

This complexity of fast changing competing and complementary interests and the increased assertiveness in advancing or defending strategic positions makes for a volatile outlook.

The assessment that oil prices remain stable within a $40-$60 range may prove optimistic…


Gary Hollands

Geopolitical analyst Tyga FX