After a 33 per cent rise in oil prices since June, Saudi Arabia's offer to increase oil output briefly drove the price of Brent Crude down by 3 per cent to $112 (£71) a barrel. But the respite was short-lived, as prices renewed their ascent after the Bank of Japan followed the lead of the US Federal Reserve by expanding its asset buying and loan programme by 14 per cent to ¥80 trillion (£627bn).
Loose monetary policy is providing price support despite the moribund economic performance of many western economies, but energy traders are also growing increasingly anxious over the deteriorating security situation through much of the Arab world, and a possible nightmare scenario if Israel makes good on its rhetoric to dismantle Iran's nuclear programme.
A flotilla of naval vessels from several nations, including the UK, is now stationed near the Strait of Hormuz, ostensibly as part of a joint naval exercise, but the message to Tehran is clear enough. Iran has threatened to mine the sea lanes through the deployment of its fleet of speedboats. And as around a third of the world's seaborne oil passes through the Strait of Hormuz, a prolonged disruption to supplies would send oil prices rocketing.
It's difficult to know if the situation unfolding in the region amounts to more than just brinksmanship, but it's been reported that diplomats at the US Embassy in Beirut have been ordered to destroy classified material as anti-American protests in Lebanon and elsewhere in the Middle East escalate. This measure is standard practice if it's thought that diplomatic staff will need to be suddenly pulled out of a country due to military action. Lebanon wouldn't be the preferred option for US citizens in the event of a strike on Iran, given the influence it wields there through Hezbollah.
But in the event that peace is given a chance, it is likely that the Saudis will endeavour to keep a lid on prices through increasing production, or at least saying they will. As ever, opinions are divided as to the level of the Kingdom's spare capacity, particularly given that it has already been forced to take up the slack for lost global supplies resulting from the economic sanctions against Iran.
