Why oil prices are not rising despite the war in West Asia
This article is authored by Hriday Sarma, senior fellow, South Asia Democratic Forum, Brussels.
In an apparent turn of events defying historical precedent, the escalating conflict West Asia--a region synonymous with global oil supply shocks--has not driven oil prices into the stratosphere. Instead, prices are on a downward trajectory, fuelled by a combination of weak global demand, diversified supply chains, and measured military responses. Brent crude recently fell by over $2 to settle at $73.01 per barrel, a level often viewed as indicative of market stability, with healthy crude supply and moderate demand. What explains this anomaly in the energy markets?
Historically, wars in West Asia have caused oil prices to surge. The Yom Kippur War of 1973 quadrupled crude prices, and even recent tensions in the Gulf have sparked fears of supply disruptions. However, today’s energy landscape is markedly different. The United States (US), now the world’s largest oil producer, has significantly reduced its reliance on West Asian oil. According to the US Energy Information Administration (EIA), American daily crude production stands at an unprecedented 13.2 million barrels, with further growth projected for 2025.
Moreover, Iran, despite being the seventh-largest oil producer, plays a diminished role in global oil exports. This reduced share, coupled with Israel’s decision to avoid targeting Iran’s oil facilities during its recent retaliatory strikes, has alleviated fears of a catastrophic supply shock. Since Iran's missile attack on Israel on October 1, Brent crude dropped to $72.56 per barrel and West Texas Intermediate (WTI) fell to $68.63. These figures represent the lowest levels amid a series of escalating tensions, highlighting the limited impact of the conflict on global oil markets.
At the heart of the current price slump is weak global demand, particularly from China. Once the world’s primary engine for crude consumption growth, China’s economy is now faltering. Beijing’s reported Gross Domestic Product (GDP) growth of 4.6% for Q3 2024 fell short of its 5% target, with industrial profits plunging by 27.1% in September — the steepest decline since the pandemic. This slowdown has rippled through global energy markets. The International Energy Agency (IEA) projects oil demand growth in 2024 and 2025 to be half that of 2022 and 2023, citing China’s transition to green energy as a key factor. "China accounted for nearly 70% of global oil demand growth in 2023; this has dropped to around 20%," the IEA noted.
The slowdown in demand has allowed supply to outpace consumption, tipping the balance toward a bearish market. The Organization of Petroleum Exporting Countries (OPEC)+, which includes major producers like Saudi Arabia and Russia, has struggled to maintain price floors despite coordinated production cuts. The group’s planned output hike of 180,000 barrels per day from December underscores the market’s oversupply, even amid ongoing geopolitical turmoil.
Meanwhile, India's renewable energy capacity has surged by 165% over the past decade, reaching 203.1 GW in 2024 and accounting for 43.12% of the total installed capacity, as the nation steadily transitions away from a fossil fuel-dominated energy mix.
One factor tempering oil prices is the measured nature of military responses in the region. While Iran’s missile attack on Israel on October 1 briefly pushed prices above $80 per barrel, subsequent Israeli strikes avoided critical oil and nuclear infrastructure, easing fears of widespread disruptions. The Israeli military’s focus on targeting Iranian missile production sites rather than oilfields demonstrated a measured counterstrike, contrasting with past conflicts where energy infrastructure often suffered significant damage.
Moreover, the global oil market has become more diversified, reducing reliance on any single region. Increased US shale production, higher output from non-OPEC nations, and the utilisation of strategic reserves have enhanced supply resilience. Europe’s accelerated efforts to reduce dependence on West Asian oil, spurred by the Ukraine war, have further insulated global markets.
Looking ahead, many experts predict continued downward pressure on oil prices. Tom Kloza, global head of energy analysis at OPIS, a US-based oil pricing company, anticipates a surplus of 500,000 to 1 million barrels per day in 2025, further driving prices down. The IEA’s latest report supports this view, highlighting that demand growth has reached its lowest level since 2020.
For consumers, this translates into relief at the pump. Gasoline prices in the US have already dropped to a national average of $3.13 per gallon, with many states seeing prices below $3. Meanwhile, India is benefiting from affordable oil supplies from Russia, which accounted for approximately two-fifths of its overall imports in October, reaching 1.95 million barrels per day (bpd), the highest in three months. In contrast, oil-producing nations face mounting challenges as their attempts to stabilise prices through production cuts yield diminishing returns.
This article is authored by Hriday Sarma, senior fellow, South Asia Democratic Forum, Brussels.
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