A barrel of oil. It contains 159 litres of blackish liquid extracted from the ground. In the world of finance, it is a number that flashes red or green. In real life, however, it is something else entirely: it is your full tank of petrol, the fuel for the aeroplane you took this summer, the fertilizer that nourished the tomatoes in your salad and the plastic bottle for your soft drink. When that number fluctuates wildly, it can throw an entire economy off balance, from the petrol pump to your plate.
So, what exactly is a barrel?
The unit itself dates back to ancient times, when oil was transported in large wooden barrels. It has endured through the decades and established itself as the global standard. But what matters is what is inside.
Crude oil is a mixture of molecules. Think of it like whole milk: on its own, it is not very useful. It is only through processing that we obtain very different products, such as cream, butter and cheese. In a refinery, the process is similar. The crude oil is heated in a large tower and, depending on their nature, the components separate: the lightest rise and the heaviest remain at the bottom. What comes out is not just one product, but a range of materials. It is a variety of materials that will be used in many different ways throughout the economy.
So, where does your barrel end up?
Around half, or 40–50%, becomes gasoline, the fuel that powers cars. Around 25 to 30% becomes diesel, which powers lorries, buses and a significant proportion of freight transport. Around 8 to 10% is converted into kerosene, which powers commercial airliners.
The rest is dispersed as gas for heating and cooking, fuel oil for cargo ships and certain power stations, and a significant proportion that is not burned, but chemically transformed into plastics, synthetic fibres, detergents, medicines and fertilizers.
In other words, if you took an aspirin or drove on a paved road this morning, you encountered oil. Not just at the petrol station.
Why does a war in the Gulf send shockwaves through your supermarket?
There is a strait between Iran and the Arabian Peninsula called the Strait of Hormuz. It is narrow, measuring about forty kilometres at its narrowest point. Every day, dozens of giant tankers pass through it, carrying oil and gas destined for Europe, Asia and the rest of the world. This strait is one of the most vital arteries of the global economy.
When a conflict breaks out in this area, the effects are immediate. Insurers covering the ships raise their premiums overnight, sometimes dramatically. Shipowners reroute their vessels, taking much longer routes. Some exporters would rather suspend their shipments than take risks.
The result is that the market anticipates a shortage and prices can skyrocket within hours.
This shock then spreads like a domino effect. Fuel prices rise, so transporting goods becomes more expensive. Kerosene prices rise, causing airline ticket prices to follow suit. Fertilizers and plastics become more expensive, meaning that manufactured goods and certain foods end up costing more. This does not happen immediately — there are inventories and strategic reserves that governments can release to soften the blow — but a prolonged crisis will eventually be reflected in the prices of goods in shops.