Why 1978-style oil embargo on Israel by Muslim countries seems fairly unlikely

Israel's military offensive against the Hamas militant group's infrastructure in Gaza has led some countries in the Middle East, in particular Iran, to call for crude oil to be used as a pressuring tool against Israel.

Reuters reported that the ongoing conflict, which flared up after the heinous murder spree of Hamas in southern Israel on October 7, has led many analysts to draw parallels with the 1973 OPEC embargo, when Arab oil producers cut off oil exports to several allies of Israel, including the United States, UK, the Netherlands and Japan following the Israeli-Arab war that year.

Iranian Supreme Leader Ayatollah Ali Khamenei appealed on November 19 to Muslim states that have normalised relations with Israel to cut those ties for at least "a limited time" after having previously already called for an "Islamic oil and food embargo" on Israel. His foreign minister, Hossein Amirabdollahian, followed his lead last month when he urged members of the Organisation of Islamic Cooperation (OIC) to impose an oil embargo as well as suggest the drastic measure of expelling all Israeli ambassadors from these countries.

As the publication notes, however, analysts and OPEC sources point to the fact that the energy world today is far different from 50 years ago, making the possibility for such an embargo highly unlikely.

Only recently, on November 11 did Muslim states, gathering at the joint summit between members of the OIC and the Arab League in Riyadh not agree to impose wide-ranging sanctions on Israel, as requested by Iranian President Ebrahim Raisi.

The transformation of the consumer segment is an important reason why 1078 is likely not to repeat itself, as Asia is the main customer for OPEC's crude, accounting for about 70% of the group's total exports unlike 50 years ago when Western countries were the main buyers of oil produced by Arab countries.

"The geopolitical environment is different compared to 50 years ago", one OPEC source said about why a new embargo was not in prospect.

"A 1970s-style oil embargo by the Gulf oil-producing states appears unlikely because two-thirds of GCC (Gulf Cooperation Council) oil exports today are purchased by Asian clients and, importantly, the economic transformation currently planned and implemented in the region requires a sustained absence of conflict", JPM Morgan told Reuters in a note.

An UBS analyst touched upon the growing influence of China in the Middle East, recalling, that "China has brokered a deal between Saudi Arabia and Iran, and ... is a very important client for Middle Eastern oil producers, the second largest oil consumer, and, together with India, the engine of oil demand growth".

Another argument made against such a harsh measurement from taking effect is the fact that the US, Israel's greatest political and military ally, is now the largest producer of oil and gas, and has a long-established strategic petroleum reserve.