Crude oil prices experienced a sharp spike in the wake of a major offensive by Hamas on Israel. However, this seemingly moderate increase conceals the potential for a more extensive Middle East conflict escalation.
Price Surge and Potential Impact
Global benchmark Brent crude futures surged up to 4.1% in early Asian trading. Hitting a high of $88.15 per barrel, a significant rise from the previous close of $84.58 on October 6. Despite this surge, Brent contracts still linger below the levels seen for most of the past week and remain beneath the recent one-year peak of $97.69 per barrel, recorded on September 28. This early market response suggests that the ongoing violence poses little immediate threat to global oil supplies.
Middle Eastern War: The Toll of the Conflict
Over 700 Israelis lost their lives, with many more abducted, as Hamas fighters breached the border on Sunday. In retaliation, Israel launched a series of airstrikes, resulting in the deaths of over 400 Gaza residents. These events signify a pivotal shift in the dynamics of the conflict in the Middle East, with Israeli Prime Minister Benjamin Netanyahu declaring the nation to be at Middle Eastern war and Iran’s President Ebrahim Raisi extending his congratulations to the Hamas leader.
Ripple Effects on Regional Relationships
The reactions of these two influential leaders in the Middle East highlight how the Hamas attacks are poised to disrupt established relationships in the region. An immediate concern is the potential for Israel to conclude that Iran played an active role in Hamas’s actions. Possibly it could prompt covert actions against the Islamic State. This places Saudi Arabia and the United Arab Emirates in a delicate position, attempting to normalize relations with Israel amidst a major conflict with Hamas.
Uncertainties for Iran
The motives behind Iran’s support of Hamas remain less evident. By backing Hamas, Tehran could jeopardize its newfound rapport with Saudi Arabia and face the risk of a shift in the Biden administration’s approach towards Iran, particularly regarding the Middle East oil exports, which have been steadily rising in 2023.
Middle East Conflict: Impact on Global Oil Supplies
While the initial surge in oil prices is a response to the current crisis, further disruptions in output or exports would be required to sustain this rally. The Hamas attacks, for now, have placed a temporary pause on efforts to normalize political relations across the Middle East. An extended and violent conflict in Gaza will likely impede the process, introducing heightened risks to oil in the Middle East.
Underlying Risks to Global Energy Markets
The increased risks and uncertainties are likely to exert upward pressure on crude oil prices. Therefore, the full implications of this crisis remain uncertain. The unfolding Middle East conflict serves as a stark reminder of how geopolitical events can swiftly reshape the global energy landscape.