Oil Prices Rise After Hamas Attacks on Israel
Oil prices have increased by 5% following the most significant attack by the Palestinian group Hamas on Israel in the last decade. This attack threatens to escalate tensions in the Middle East, a region that serves as the source of roughly one-third of the world's oil.
This report comes from Bloomberg.
In particular, West Texas Intermediate (WTI) crude oil is trading at around $86 per barrel, as the military risk premium has returned to the markets.
While recent events in Israel do not pose an immediate threat to oil flows, there is a risk that the conflict could escalate into a more destructive proxy war involving the United States and Iran.
Any response by Tehran in light of reports implicating it in the attacks could jeopardize the passage of vessels through the strategic Strait of Hormuz, a vital oil supply route that Iran has previously threatened to block.
"The war between Israel and Hamas reduces expectations that Saudi Arabia will cut or remove its 1 million barrels per day production cap," cited Bloomberg, quoting analysts at Citigroup Inc., including Ed Morse.
According to their analysis, there is also an increasing risk of Israel launching an attack on Iran, a major player in the global oil market.
It's worth noting that earlier this month, WTI and global benchmark Brent futures sharply declined by approximately $10 per barrel. This occurred before the attack on Israel.
To recap, the extensive Hamas attack on Israel began on the morning of October 7, with a breach of barriers on the Gaza Strip border and a massive rocket barrage. On the morning of October 8, Israel activated "Operation 40 Aleph" for the first time in 50 years, signifying the start of a war. The Israeli military is targeting buildings and terrorist-related sites in the Gaza Strip.
The price hikes are fuelling concerns about the potential for an expanded conflict. The sudden attack, which claimed the lives of 700 Israelis, many of them civilians, and Israel's declaration of war in response, raised fears that a potential escalation of the conflict could involve the United States and Iran.
Experts note that the key question for the oil market is whether the conflict will remain under control or spread to other regions, particularly Saudi Arabia.
According to Warren Patterson, Head of Commodity Strategy at ING Groep NV, the uncertainty regarding how the situation unfolds is likely to support prices.