Crude oil prices saw a sharp rise in the wake of a major Hamas offensive against Israel. However, this seemingly moderate increase masks the possibility of a broader escalation of the conflict in the Middle East.
Price increase and possible impact
Global benchmark Brent crude futures rose as much as 4.1% in early Asian trading. Reaching a high of $88.15 per barrel, a significant increase from the previous close of $84.58 on October 6. Despite this increase, Brent contracts still remain below levels seen for most of last week and remain below the recent one-year high of $97.69. per barrel, recorded on September 28. This early market response suggests that the current violence poses little immediate threat to global oil supplies.
Middle East war: the price of conflict
More than 700 Israelis lost their lives and many more were kidnapped when Hamas fighters crossed the border on Sunday. In retaliation, Israel launched a series of airstrikes that killed more than 400 Gaza residents. These developments signify a fundamental shift in the dynamics of the conflict in the Middle East, with Israeli Prime Minister Benjamin Netanyahu declaring that the nation is at war in the Middle East and Iranian President Ebrahim Raisi extending his congratulations to the Hamas leader. .
Domino effects in regional relations
The reactions of these two influential leaders in the Middle East highlight how the Hamas attacks are about to upend established relations in the region. An immediate concern is the possibility that Israel will conclude that Iran played an active role in Hamas’ actions. It could possibly spark covert action against the Islamic State. This puts Saudi Arabia and the United Arab Emirates in a delicate position, attempting to normalize relations with Israel in the midst of a major conflict with Hamas.
Uncertainties for Iran
The motives behind Iran’s support for Hamas remain less obvious. By backing Hamas, Tehran could jeopardize its new relationship with Saudi Arabia and face the risk of a change in the Biden administration’s approach toward Iran, particularly with regard to Middle East oil exports, which have increased. constantly in 2023.
Middle East conflict: Impact on global oil supply
While the initial rise in oil prices is a response to the current crisis, further disruptions to production or exports would be needed to sustain this rebound. The Hamas attacks have, for now, put a temporary pause on efforts to normalize political relations across the Middle East. A prolonged and violent conflict in Gaza will likely impede the process, introducing greater risks for oil in the Middle East.
Underlying risks to global energy markets
Increased risks and uncertainties are likely to put upward pressure on crude oil prices. Therefore, the full implications of this crisis remain uncertain. The current conflict in the Middle East serves as a stark reminder of how geopolitical developments can rapidly reshape the global energy landscape.
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