As oil rises above $100 amid escalating Middle East tensions, the question for the Bitcoin network and miners is not whether their electricity bills will rise, but whether Bitcoin’s price will fall.
According to research by bitcoin mining software and services company Luxor’s Hashrate Index, the direct effect of oil price shocks on mining costs is likely to be limited, but the broader macroeconomic implications could weigh heavily on the industry.
However, the impact of rising oil prices is not zero on the Bitcoin network.
Luxor estimates that around 8 to 10 percent of the global bitcoin hash rate operates in electricity markets, where electricity prices are closely linked to crude oil. These operations are primarily concentrated in Gulf states such as the United Arab Emirates and Oman, with minor contributions from Iran, Kuwait, Qatar and Libya.
“The real oil-exposed countries” are the Gulf states, Luxor wrote in its research note, adding that the UAE and Oman together account for about 6% of the network’s computing power, or hash rate.
“These grids run primarily on natural gas derived from oil production, with electricity prices tracking crude oil more directly than in the United States or Russia,” the report said.
Meanwhile, Iran is estimated to have another 0.8%, and other smaller contributors such as Kuwait, Qatar and Libya bring the total raw sensitive hashrate exposure to around 8-10% of the network.
The remaining roughly 90% of the network operates in regions where electricity prices are driven by natural gas, coal, hydro or nuclear power, meaning that crude oil price fluctuations have little direct impact on mining costs.
Impact on mining
What does this mean for bitcoin miners, who run power-hungry machines to secure the network and validate transactions?
Luxor claims that even if oil prices remain above $100 per barrel, the effect on mining economics from higher electricity costs is likely to be limited to a small part of the network. Electricity is the single largest input cost to mining bitcoin.
Instead, the bigger risk for miners lies in how geopolitical shocks affect bitcoin’s price. According to Luxor, periods of macro stress often trigger risk-off behavior in financial markets, which can pressure volatile assets like Bitcoin.
Recent data cited by the firm shows that the hash price, a measure of profitability for miners, fell to a record low of $27.89 per petahash per second per day in February, driven largely by a 23.8% drop in bitcoin’s price over the same period.
For miners, Luxor concludes, profitability is far more sensitive to changes in bitcoin’s price than to changes in electricity costs.
Read more: Bitcoin Hash Rate Falls 12% in Worst Drop Since China’s Mining Ban: CryptoQuant
