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During the last couple of weeks, the impact of geopolitics has become more pronounced in oil markets. Following the Houthis attack on a tanker carrying Russian-origin naphtha over the weekend and the killing of three soldiers on a US base in Jordan, the market turned jittery.

Last weekend, the World Economic Forum’s annual meeting came to a close in Davos. These gatherings of the “global elite” or the so-called “Davos men” always draw criticism for being elitist

The troubles at the Bab Al-Mandeb, a narrow sea lane connecting the Gulf of Aden to the Red Sea, started in earnest mid-December when Houthi rockets attacked ships in the area. The strait is a chokepoint for global trade because passing it is a prerequisite to gain access to the Suez Canal.

The global demand for oil has finally recovered to above pre-pandemic levels and both the Organization of the Petroleum Exporting Countries and the International Energy Agency foresee demand growth to continue by 1.1 million barrels per day and 2.5 million bpd respectively in 2024. 

The supply chain plays a crucial role in the global economy and sea lanes are the conduit through which a large part of goods and supplies including energy are transported.

While there were a lot of jibes in member countries of the Organisation for Economic Co-operation and Development and among the NGO community for holding COP28 in UAE due to the country being a major oil producer.

Analysts took note when the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, postponed their ministerial meeting to Nov. 30 coinciding with the start of the COP28 meetings in Dubai. 

The thesis is that exogenous shocks be they geopolitical or economic result in volatility. Recent developments in the global oil market prove the statement.