Middle East Violence Sparks Surge in Oil Prices
Oil prices experienced a significant surge of over $3 per barrel in early Asian trading today, driven by escalating violence in the Middle East. The weekend witnessed intense military clashes between Israeli and Hamas forces, intensifying political uncertainty across the region. Brent crude soared by 3.95%, reaching $87.92 a barrel, while U.S. West Texas Intermediate crude rose by 4.16%, hitting $86.23 a barrel.
The escalation began with Palestinian Islamist group Hamas launching a major military assault on Israel, resulting in the deaths of hundreds of Israelis. In response, Israel carried out a series of retaliatory air strikes on Gaza, which continued throughout Sunday. The eruption of violence poses a threat to the ongoing efforts by the U.S. to broker a reconciliation between Saudi Arabia and Israel, which would involve the normalization of relations and a defense deal with the support of the United States.
This new wave of violence in the Middle East jeopardizes the recent progress made in improving relations between Saudi Arabia and Iran. A potential normalization between Saudi Arabia and Israel could effectively freeze the recent detente between Saudi Arabia and Iran. As a result, geopolitical risk in the region has increased, provoking higher volatility in oil prices.
ANZ Bank analysts suggested that the rising geopolitical risk will likely support oil prices, emphasizing that higher volatility should be expected. The attacks have garnered condemnation from Western nations, while Iran and Hezbollah (Iran’s allies in Lebanon) openly praised them. Focus has now shifted to whether Iran was involved in these attacks, with Israeli authorities already making allegations to that effect.
While the conflict may impact oil markets, Vivek Dhar, an analyst at Commonwealth Bank of Australia, notes that it would require a sustained reduction in oil supply or transport to have a lasting and meaningful effect. He further adds that if Western countries officially link Iranian intelligence to the Hamas attack, Iran’s oil supply and exports could face imminent downside risks.
As the situation unfolds, the world watches closely to see how the violence in the Middle East will impact the stability of oil markets. The potential involvement of Iran and the reactions of Western nations will be crucial factors determining the course of events.
