Oil and Gas Sector – HELP, Open Acreage Policy, etc.

How the psychology of Benjamin Netanyahu, Joe Biden and MBS is driving oil prices


From UPSC perspective, the following things are important :

Prelims level: Brent Oil

Mains level: impact of oil price fluctuations

Gas prices climb as crude oil briefly hits highest prices in 6 years - ABC  News

Central idea 

The article highlights the unpredictability of the international oil market, challenging conventional predictions due to a complex interplay of geopolitical, economic, and psychological factors. It underscores the significance of leaders’ personal challenges and decisions, particularly those of Netanyahu, Biden, and MBS, in shaping current market dynamics.

Key Highlights:

  • Unpredictability of Oil Market: Predicting the international oil market is challenging due to factors beyond supply, demand, and geopolitics, including exchange rates, financial speculation, and human psychology.
  • Recent Market Trends: Despite Middle East tensions, the oil price (Brent) did not sharply increase as expected, standing at $81 on December 1, influenced by factors like stable supply, new discoveries, and a slowdown in Chinese demand.
  • Non-fundamental Drivers: The article argues that the current market conditions are shaped more by the psychology of key leaders, including Benjamin Netanyahu, Joe Biden, and Mohammed bin Salman, than the traditional fundamentals of demand and supply.

Key Challenges:

  • Psychological Drivers: The dominant market drivers are identified as the personal challenges and state of mind of key leaders, potentially impacting their decisions in response to Middle East turmoil.
  • Systemic Position vs. Personal Factors: While leaders hold a systemic position at the cross-section of geopolitics and geoeconomics, their current state of mind is considered more crucial in influencing the petroleum market.

Key Terms and Phrases:

  • Brent Oil Price: Mention of the Brent oil price standing at $81 on December 1.
  • Systemic Position: Leaders’ roles at the intersection of geopolitics and geoeconomics in the international oil market.
  • Psychology of Leaders: The impact of the personal challenges and mental states of leaders like Netanyahu, Biden, and MBS on market dynamics.

Key Quotes:

  • “Dominant drivers of market conditions today are not the fundamentals of demand and supply, but the non-fundamentals, the psychology of leaders.”
  • “Might we not be experiencing the deceptive calm that precedes a volatile storm?”

Key Statements:

  • Fundamentals vs. Non-fundamentals: The article questions whether the current market conditions are sustainable, highlighting the potential influence of leaders’ psychology over traditional supply and demand fundamentals.
  • Deceptive Calm: Raises the possibility that the calm in the oil market may be deceiving, suggesting an impending volatile shift.

Key Examples and References:

  • Recent Middle East Tensions: Refers to the attack by the Al Qassam brigade and the potential impact on oil prices, contrasting with the unexpected stable market conditions.
  • US Troops Casualties: Hypothetical scenario of US troops being killed in Syria and Iraq, prompting debates on military responses with implications for oil prices.

Key Facts and Data:

  • Oil Discoveries: Mentions recent oil discoveries in Brazil and Guyana, along with increasing US shale oil production.
  • Chinese Economic Slowdown: Highlights the slowing demand for oil due to the slackening Chinese economy.

Critical Analysis:

  • Leaders’ Influence: Emphasizes the potential impact of leaders’ personal challenges and decisions on the trajectory of the petroleum market, suggesting a shift from traditional market dynamics.
  • Unpredictability of Oil Market: Acknowledges the difficulty in predicting the oil market, attributing it to a combination of fundamental and non-fundamental factors.

Way Forward:

  • Contingency Actions: Encourages decision-makers to contemplate contingency actions based on two alternative scenarios: rising oil prices or a significant drop, suggesting strategic petroleum reserve buildup and streamlined trading norms for arbitrage opportunities in anticipation.
  • Strategic Petroleum Reserves: Given the uncertainty in the oil market, India should accelerate efforts to build and expand its strategic petroleum reserves, providing a buffer against potential supply disruptions or price volatility.
  • Strategic Collaboration: Explore collaborative efforts with key oil-producing nations to strengthen energy security, fostering partnerships that ensure stable and reliable oil supplies.
  • Investment in Renewable Energy: Accelerate investments in renewable energy sources to reduce dependence on volatile oil markets, promoting sustainability and environmental conservation.
  • Energy Efficiency Measures: Implement stringent energy efficiency measures across industries and sectors to mitigate the impact of oil price fluctuations and contribute to a more resilient energy landscape.

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