How The Israel-Hamas Conflict Could Impact Oil Markets

As tensions escalate in Israel, global oil traders are on high alert, gauging the potential ramifications on the broader Middle Eastern region and keeping eyes specifically on Iran.

What Happened: While the immediate disruption to oil supplies seems limited, the spotlight is firmly on Iran, a significant oil powerhouse and a known supporter of Hamas, the group behind the recent Israeli attacks.

The Strait of Hormuz, a critical maritime route, is under scrutiny. Iran has, in the past, hinted at closing this vital passage, reported Bloomberg. 

With the U.S. potentially intensifying its stance on Iranian oil exports, the global oil market is on tenterhooks. Bob McNally of Rapidan Energy Group highlighted that the real concern would arise if the unrest reached Iran, though he currently deems it a distant possibility.

Global crude reserves have been under strain due to production reductions by Saudi Arabia and Russia. Pierre Andurand, founder of Andurand Capital Management LLP, said in a post on X on Friday that the conflict is unlikely to impact oil supply in the short term. But it could eventually have an impact on supply and prices.

Many people asked me if the Hamas attacks on Israel will have an impact on oil prices. As the Levant is not a large oil producing region, it is unlikely to impact oil supply in the short term. And therefore one should not expect a large oil price spike in the coming days. But it…

— Pierre Andurand ��� (@AndurandPierre) October 7, 2023

According to the report, current expectations are low for Saudi Arabia to halt oil supplies in support of Palestine.

Also Read: Israel Under Siege: Unprecedented Hamas Attack Sparks Intense Clashes, Netanyahu Says 'We Are At War'

"The crude market is very tight as physical markets are screaming, with backwardation heading higher, dragging the flat price higher,” Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC, told Bloomberg. 

The ongoing conflict might, however, hinder the ongoing normalization discussions between Riyadh and Washington

Energy Minister Suhail Al Mazrouei of the United Arab Emirates clarified that OPEC's decisions remain unaffected by the conflict, emphasizing a focus on supply and demand.

Meanwhile, Iran, another OPEC member, has shown solidarity with the Palestinian offensive.

Iran's increasing oil exports, which have recently reached a five-year peak, play a pivotal role in the global market. Any aggressive move by Israel against Iran could lead to a sharp rise in crude prices due to perceived disruption risks.

With the Strait of Hormuz being a potential flashpoint, any move by Iran to block it could have severe repercussions. The strait witnesses the movement of nearly 17 million barrels of oil daily. The increasing Iranian oil supply has stabilized fuel prices this year, especially with Saudi Arabia and Russia's production cuts.

However, the geopolitical landscape is changing. "The Hamas strike and Israeli response raises the geopolitical temperature,"  Richard Bronze from Energy Aspects Ltd. told Bloomberg.

On Sunday, Lebanon's Hezbollah militant organization officially acknowledged its responsibility for launching attacks on three locations within the Shebaa Farms, situated at the crossroads of the Lebanese-Syrian border and Israel's occupied Golan Heights.

In response, the Israeli Defense Force (IDF) confirmed that it had retaliated, targeting Hezbollah's terrorist infrastructure.

At the time of writing, global benchmark Brent was at $84.58 and the U.S. West Texas Intermediate futures was up at $82.81. 

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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