Uncertainty in oil market after Israel-Hamas conflict
Fear of the expansion of the ongoing conflict between Israel and Hamas to a regional war has jolted the global oil market in recent days and caused uncertainty in its future price.
Israel and Palestine are not oil producers, but the Middle East region accounts for almost a third of the global supply. It is home to some of the world’s major oil producers, including Iran and Saudi Arabia, as well as key transit routes such as the Strait of Hormuz, which is known as the world’s most important oil chokepoint.
Energy analyst Saul Kavonic told the BBC that global oil prices have risen “due to the prospect of a wider conflagration that could spread to nearby major oil-producing nations such as Iran and Saudi Arabia”.
On Tuesday, oil prices eased after rallying more than 4% in the previous session, with traders cautious as they watched for potential supply disruptions.
Analysts believe that the conflict itself has no direct effect on the oil market. The main concern, however, is about the growing tensions between Israel and Iran. Iran is one of the main supporters of the Palestinian resistance groups and also a major oil producer in the region. Even though Iran has repeatedly announced its support for the Palestinian resistance groups, it has denied involvement in the ongoing conflict. Both the US and Israel have confirmed this, saying that they have seen no evidence to support Iranian involvement. Caroline Bain, chief commodities economist at Capital Economics, says that Iran has been increasing oil production over the course of this year despite US sanctions.
“The US seems to have turned a blind eye to a steady increase in Iranian production, that... is going to be more difficult for the US to ignore going forward from here,” she said.
Overall, Bain said, Capital Economics expected demand for oil to exceed supply in the final three months of the year, and “that should support higher prices”.
Vivek Dhar, an energy analyst, believes that Brent oil will ultimately stabilize between $90–$100 a barrel in Q4 2023, adding that the Palestine-Israel conflict raises the risk of Brent futures tracking at $100 a barrel and above.
This may have forced the US to hold talks with Venezuela in a bid to control global oil prices. Sources have told Reuters that Venezuela and the US have progressed in talks that could provide sanctions relief to Caracas by allowing at least one additional foreign oil firm to take Venezuelan crude oil under some conditions.
Conflicts in the world usually have a direct impact on the oil market. Last year, oil prices experienced a sharp rise, hitting more than $120 a barrel in June following Russia’s military operation in Ukraine.