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As the world holds its breath over Israel’s response to Iran’s missile attack earlier this month, the global oil market has taken the most heat. In a see-saw weekly movement pattern, seen for the first time in six years, oil prices have swayed one way and the other every single week for six straight weeks. All this while, fundamentals have largely stayed intact, with a bit of balancing on both supply and demand fronts.

What has visibly worsened is the outlook on geopolitical stability. Although the physical disruption of oil supplies both in terms of production and transportation, has not materialized to any meaningful degree – it is the risk that seems to have increased manifolds from a month ago. The Middle East has arguably never been closer to a full-blow regional war in a very long time than it is today, and it is only fair for that to carry a premium higher than skirmishes the world is used to.

Brent crude’s march to $80/bbl, after having dipped to the lowest in three years – as a result of the sharpest weekly gain in nearly 20 months. The jury is out on when and how Israel respond to the Iranian attack – and the oil market’s response will be in accordance. Speculators in the algo market have switched bets from a sharp bear run just last month to giving ears to calls of oil hitting $100/bbl before the year-end.

The likes of Goldman Sachs and Citi have chalked out the possible disruption scenario if the forthcoming Israel attack on Iran does end up targeting Iranian oil infrastructure. Granted, there is ample reserve capacity in the global system to make up for any loss from Iran, but it will take time to draw from reserves, and fulfilling China’s demands would not be managed overnight. Mind you, Chinese demand may well be struggling to regroup, the stimulus from the government has offered enough legs to maintain strong demand for the rest of 2024.

Meanwhile, authorities in Pakistan continue to shield retail prices from higher incidence of Petroleum Levy. Lopsided taxation choices are a Pakistanspecialty and that continues till date – with the government likely to scamper for tax revenues in the second half of the fiscal year when pushed into a tight corner. With the IMF back in the fold officially, pressure to meet revenue targets will intensify around the end of 2QFY25. Sooner or later, the authorities will have to give up their resistance to PL. It is just unfortunate they may have to do it the tough way- at the time of higher international prices, having failed to take advantage when prices were falling.

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