The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate softened on Thursday after oil prices surged by 6% as traders became increasingly concerned that violence in the oil rich Middle East is spreading.
The Pound Sterling to Canadian Dollar (GBP/CAD) Exchange Rate softened to a session low of 1.8547
The ‘Loonie’ made gains against the majority of its most traded peers after Saudi Arabia, the world’s biggest crude oil exporter, and its Arabic allies launched air attacks against Houthi rebel targets in Yemen. The military action raised fears that the conflict in the oil-rich Middle East is getting out of control and could lead to a disruption in oil supplies.
The price of West Texas Intermediate crude rose to $51 per barrel and Brent crude advance to just under $60 per barrel.
As the session progressed, some of the concerns over supplies eased but worries remain that the conflict could escalate and see Iran intervene in the conflict. The last thing the West would want is a direct-armed confrontation between the Middle East’s two leading powers.
On the one side, there would be the Sunni Saudi Arabia and its allies the UAE, Qatar, Kuwait and Bahrain and on the other, there would be Iran and Shia Muslims.
Could Iran/Saudi Rivalry Escalate?
As Iran and Saudi Arabia are both members of OPEC, the group that produces 40% of the world’s oil, a conflict would have a profound impact on global supply.
Such a conflict is unlikely but concerns over supply remain, as Yeman is adjacent to the vitally important Bab el-Mandeb Straight, which is one of the world’s main transit regions for sea trade. Ships needing to the reach the Suez Canal have to cross the straight.
Despite the spike in concern over the situation, the Canadian Dollar’s gains could be short-lived, as many traders believe that the current conflict will not have much of an impact on supply.
‘The price rise is likely to be short-lived, but I’m sure traders will use it to take some profit as the world briefly remembers that the Middle East is volatile. The Saudi airstrikes will not have a real impact on the availability of crude,’ said Richard Gorry, the managing director of JBC Energy Asia.
Further gains for the Canadian Dollar against the Pound were restrained following the release of stronger than forecast UK retail sales data.
