The recent escalation between Israel and Lebanese militant group Hezbollah offered the latest reminder of what a tinderbox the Middle East is right now and the implications that has for oil prices.

The black stuff moved back through $80 per barrel after a period of weakness, offering a reminder of why forecasting oil prices is often a fool’s errand.

Nonetheless, there are plenty of professionals who are willing have a go. Analysts at Bank of America reckon oil prices will dip a little from the $83 per barrel they averaged across 2023 and 2024 (to date) to around $80 per barrel in 2025. Although this prediction is heavily caveated.

‘There are plenty of unknowns. First, Middle East tensions could drive prices much higher if volatile geopolitics lead to energy infrastructure damage. Second, our central scenario encompasses lower US interest rates, a weakening dollar, and China stimulus heading into 2025. This is a positive cyclical macro backdrop that should lend support to oil prices. Third, energy prices are already cheap relative to history, particularly when adjusted for inflation, and oil is cheap versus other thermal fuels.’

There are several reasons why a move higher in oil matters. Most broadly, in global economic terms, a high oil price acts as a tax on growth as businesses and consumers bear the financial impact of higher energy prices.

You might, or might not, get the same level of GDP but it will come at a higher cost.

It is also important for investors who have exposure to the FTSE 100, given the continuing heavyweight status of BP (BP.) and Shell (SHEL).

But the energy transition will change all this right? As the world weans itself off the black stuff this kind of volatility will be a thing of the past.

Not according to ExxonMobil (XOM:NYSE). It’s obviously a partial viewpoint but the US oil giant argues pretty robustly that crude demand will actually be virtually unchanged by 2050 and that if industry investment is curtailed it will result in a big energy price shock.

After the surge in oil and gas prices following the invasion of Ukraine in 2022, Western governments are increasingly cognisant of the risks associated with such a shock and the inflationary pressures this could help to unleash.

Obviously, environmental concerns will come into play too but long-term thinking isn’t always a strength of politicians looking at four or five-year election cycles. All told, investors may well have to keep an eye on oil prices for some time to come.

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