Middle Eastern Pendulum Between Israel and Iran
Following the large-scale missile attack by Tehran the day before yesterday, Israel retaliated on September 3, striking Iranian proxies, including in Syria and Lebanon. However, Israel has yet to strike Iran's nuclear facilities. Key allies of Israel are urging the country to halt its military actions against Iranian proxies. On the night of October 2-3, Russian forces in western Syria even participated in countering Israeli attacks. But both sides are once again moving towards negotiations.
The prospects of turning the local conflict in the Middle East into a full-scale war are now the main topic of discussion in leading capitals. This risk is also a hot issue in the US presidential elections. The conflict in the Middle East significantly influences the ongoing war in Europe, triggered by Russia’s full-scale invasion of Ukraine. However, it remains unclear how likely this prospect of full-scale war is. The only indicator providing some clarity is the oil price dynamic, which does not seem catastrophic. Furthermore, Iran’s attempts to initiate negotiations through intermediaries offer some hope for de-escalation.
Oil as a Signal Indicator
Iran is currently an exporter rapidly restoring its once-lost oil sales volumes. Saudi Arabia, a key global exporter alongside Russia—both part of OPEC+—is witnessing rapid growth in US oil production, which is becoming a more significant factor with each passing month.
Let’s take a look at how events in the Middle East impacted oil prices in September and early October 2024. In mid-September, the price of Brent crude oil was around $73 per barrel. Then, on September 19, a series of explosions affected electronic devices used by members of the terrorist organisation Hezbollah. The number of targets ranged from hundreds to thousands, according to some sources. Immediately following the "pager attack," oil prices rose to $74.9 per barrel. After this, Israel launched airstrikes on Hezbollah military targets in southern Lebanon. As a result, by September 26, the price had dropped to $71 per barrel of Brent crude oil.
Photo: Oil prices indicate market optimism about future developments in the Middle East. Or perhaps the markets are simply tired of being scared. Source: collage The Gaze.
These airstrikes concluded with Israeli troops entering southern Lebanon on September 30. Oil prices began to move towards $72 per barrel. Late in the evening of October 1, Iran launched a missile attack on Israel, firing 181 ballistic missiles in two waves. This exceeded the intensity of the attack in April 2024 and marked Iran’s second direct attack on Israel. Unlike in April, this time Israeli military targets, including the Nevatim airbase in the Negev desert, were hit. By October 2, oil had risen to $73.9 per barrel, and on October 3, after Israeli airstrikes on military targets in Syria, oil continued to climb, reaching $74.5 per barrel of Brent.
What does an increase of less than 2.5% in oil prices amidst concerns about a local conflict escalating into a regional war suggest? Probably that the risk of such a scenario is not too high. However, it might be worth recalling the price dynamics during the first direct military confrontation between Iran and Israel in April, when Tehran used at least 170 drones, 30 cruise missiles, and 120 ballistic missiles. Overall, the scale of the attack appeared similar to the October 1 strike, but unlike recent events, Israel’s partners participated in repelling the attack.
In April, Iran cited revenge for Israel’s bombing of its embassy in Damascus on April 1 as the reason for the attack. Two Iranian generals were killed in the airstrike. Oil prices before April 1 were around $87 per barrel. After the Israeli airstrike, prices jumped to $91.2 per barrel on April 5, marking the highest level of the year. Iran's drone and missile attack on Israel took place at midnight on April 13. The day before the attack, oil was priced at $89.7 per barrel, rising to $90.1 the next day, only to fall back to $87.3 by April 17. From then on, until September, oil prices continued to decline, with occasional rebounds and drops.
The April attack was Iran’s first direct strike. Prior to that, Iran had only attacked Israel through its proxies. In April, according to US reports, at least nine Iranian missiles struck Nevatim and Ramon airbases, but the damage was minor. Thus, the April flare-up was with oil price fluctuations within 3.5%. The market’s reaction was probably more nervous because it was the first direct confrontation.
After April, there was a series of multilateral negotiations, which were interrupted by the escalation surrounding the Gaza Strip and shelling from southern Lebanon in August.
And Again, Negotiations
On September 2, Iranian President Masoud Pezeshkian met with the Emir of Qatar, Sheikh Tamim bin Hamad Al Thani, in Doha. At the concluding press conference, Masoud Pezeshkian insisted that Iran "does not seek war," which seems rather odd just a day after a massive missile attack and alongside his own assurances that there would be more attacks if Israel retaliated for Iran’s missile strike.
Qatar has traditionally acted as a mediator between Israel and Iran, as well as between Israel and Iran’s proxies. Following the April crisis, a series of negotiations took place in various formats, with Qatar acting as a mediator, but the outcome, as we see, has been negative.
The current situation differs from that in April also because, in August, the US deployed additional naval and air forces to the region. The US and Israel’s other partners are pressing for a halt to hostilities and a ceasefire in the Gaza Strip. However, Israel now seems determined to regain control of the situation. This includes Israel’s determination to secure the return of a hundred hostages who have been held by Hamas for exactly a year.