Oil Prices Surge Amidst Israel-Gaza Conflict, Raising Concerns for Global Supply Chains
Posted 09/10/2023 10:39
Oil prices experienced a significant 4% increase on Monday, fueled by growing concerns over the potential disruption of global oil supply chains due to the ongoing conflict in Israel and Gaza. While neither Israel nor the Palestinian territories are major oil producers themselves, the Middle East region plays a pivotal role in global oil supply, accounting for nearly a third of the world's oil production.
The surge in oil prices saw the West Texas Intermediate, a key benchmark for US oil, reaching over $86 per barrel, and Brent crude also recorded a notable increase during early Asian trading. The recent escalation of tensions began with a wave of attacks initiated by the Hamas militant group on Saturday.
While the latest oil price increase has not yet reached the levels seen less than a month ago when a barrel of Brent crude cost $94, it still marked a more than 3% rise following the attacks by Hamas on Israel and strikes on the Gaza Strip. The conflict's impact on oil prices raises concerns about potential inflation and energy production costs.
Market worries have also emerged regarding Iran's involvement in the conflict, with concerns that deep and relentless retaliatory strikes on Gaza could escalate the situation, possibly drawing Iran into the conflict and affecting energy flow in the region.
The conflict between Israel and Hamas has not posed an immediate threat to oil flows, but there is a risk that it could escalate into a more devastating proxy war, potentially involving the US and Iran. This scenario could endanger the passage of vessels through the Strait of Hormuz, a vital conduit for the movement of nearly 17 million barrels of crude and condensate daily.
While some experts believe that the conflict may lead to a knee-jerk surge in crude prices, they emphasize that the overall impact will likely be limited as long as the situation does not escalate further. Analysts suggest that the conflict's direct impact on oil production and supply is limited, but its proximity to a significant oil-producing and exporting region keeps the situation closely monitored.
While it is not the base case scenario, the risk of a regional war expanding to involve the US, Iran, and other supporters of the parties in conflict remains a concern. The international community continues to watch the situation closely, aware of the potential consequences for global oil markets.
Additionally, ongoing supply cuts by Saudi Arabia and Russia have contributed to recent oil price increases. The market anticipates that these developments may eventually lead to increased requests for Saudi oil supply, further influencing oil prices.
In conclusion, the Israel-Gaza conflict has raised concerns about its potential impact on oil prices and global supply chains. While experts emphasize that the overall impact remains limited for now, the situation in the Middle East continues to be closely monitored for any signs of escalation or wider regional hostilities.