Russell: What is not happening in Middle East crude oil supply is more important than what is.

In times of increased tensions in the Middle East, it's more important to focus on what isn't happening than to fixate on the dramatic headlines about tit-fortat air and rocket strikes between Israel and Iran.

This means that from the perspective of the crude oil market, it's important to focus on the fact that not a single barrel of crude supply has been lost. It is also in the interest of all parties involved that this continues to be the case.

Crude oil prices increased again during early Asian trade on Monday. Brent futures, the global benchmark, gained 2.1% and traded at $75.76 per barrel.

Brent crude oil rose to its highest level in almost five months on June 13 after Israel launched drone and air attacks that resulted in the deaths of several Iranian nuclear scientists, nuclear commanders and top nuclear scientists.

It's important to note that the physical oil market in the Middle East has a more measured reaction than the paper market.

On June 13, the price of Dubai swaps (a contract that is settled against the physical price of Dubai crude) rose by 5.8% to $71.03 per barrel.

Brent contracts have seen a $4.87 increase compared to the $3.86 gain for Dubai swaps.

This smaller gain in physical oil may be a sign traders and refiners have less concern about an interruption of supply than paper investors.

Although physical oil prices were lower than those on paper, they both had significant increases. This is a reasonable response to an escalating war, particularly since the Israeli attacks and Iranian rocket barrages continue.

For oil markets, the question is whether or not the risk of an attack on Iran's crude export and production infrastructure and Iran attempting to close the Strait Of Hormuz are real and imminent.

The small channel of Hormuz between the Persian Gulf, the Gulf of Oman and the Indian Ocean, which lies beyond, carries up to 20,000,000 barrels of oil per day, or a fifth of global daily oil consumption.

There are few alternatives to the route used by OPEC member Saudi Arabia, Kuwait, Iraq, and Iran for their bulk crude and product exports.

Qatar, which is the second largest shipper in the world of super-chilled fuels, also uses this route to export its liquefied gas.

It is worth noting, however, that during all of the conflicts that have plagued the Middle East in the past, the Strait has never been blocked. However, there have been cases when Iran has boarded tankers and detained them.

One could argue that Iran's best option is to continue to raise the price of oil by highlighting the dangers associated with shipping through the Strait of Hormuz. This will keep the market focused on the issue, and prevent the threat to the flow of oil.

HORMUZ RISKS

What would happen if Iran were to try and close the waterway by pursuing what might be called a nuclear option?

The conflict would be exacerbated if Iran and other countries were to stop exporting crude oil.

The United States could act to keep the waterway opened, while Iran would sacrifice any goodwill that it may have with its Gulf neighbours as well as China, which is the world's largest crude importer, and, in fact, the only major buyer for Iran's sanctionsed oil.

China does not engage in loudspeaker diplomatic outreach, but it still makes its opinions known to all parties in the conflict. Beijing is keen to see an immediate de-escalation.

Although the United States tends to express its views publicly, they are sometimes confused by President Donald Trump’s tendency to speak off-the-cuff or contradict his own senior officials.

Washington's message is also clear: they will defend Israel and only intervene if Iran directly attacks U.S. personnel, interests or facilities.

Israel also restricted its attacks to domestic Iranian energy infrastructure, such as refineries and tanks for storage. This is a measure to make life harder for Iranians without harming crude production or exports.

It is important to note that in the past, even dramatic events have led to only limited disruptions in crude oil supply. Tensions will eventually subside.

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These are the views of a columnist who writes for.

(source: Reuters)