Global energy sector risks posed by Israel-Hamas?

Global energy sector risks posed by Israel-Hamas?. It has been warned by experts that the increasingly heated confrontations between Israel and Hamas may put additional strain on the world’s oil and gas supplies, which have already been compromised by Russia’s invasion of Ukraine.

Since the bloody attack by Hamas on Israel on October 7 sparked the conflict in response to the conflict, increases in oil prices have so far been relatively mild in response to the violence.

In recent weeks, Brent, the European benchmark, has gained around 10%, while the American equivalent has gained around 9%.

There is a price gap between the current price of gas and the historical price of oil.

As Edoardo Campanella, an analyst at UniCredit, told AFP, Israel is not a major oil producer and no major international oil infrastructure runs near the Gaza Strip or the southern part of Israel.

In spite of this, investors are conscious of the “Middle East tinder box ‘s inherent risk to global oil supply. Therefore, they have dived into contracts compounding matters even further,” explained Stephen Innes, analyst at SPI AM.

The prospect of Iran, which is a supporter of Hamas and a sworn enemy of Israel, being drawn into the conflict presents one of the most serious risks for the energy market in the near future.

As a result of years of international sanctions on the country, the OPEC member has seen its production and exports impacted, however, despite this, it has increased its production over the last year and is suspected of smuggling barrels into the country.

As a result of these actions, global prices have been held down despite increasing demand and tight supply. This has led to the Biden administration in the US turning a blind eye to the problem, according to Helge Andr Martinsen, analyst at DNB.

In spite of Tehran’s decision to stay out of the conflict, “the West might decide to tighten sanctions on Iran in the future or simply to enforce the sanctions that are already in place more effectively”, Campanella said.

According to Seb Research, Iran might respond to the sanctions by blocking the Strait of Hormuz, the world’s most important oil transit zone, with a daily flow of more than 17 million barrels, which is 30% of all oil traded by sea.

Campanella explained that only Saudi Arabia and the United Arab Emirates have pipelines that are capable of bypassing the Strait of Hormuz when shipping crude oil outside of the Gulf region.

The threat of gas is real

As analysts say, the worst-case scenario, although unlikely, seems to be stronger sanctions that lead to Iran retaliating by attacking Saudi Arabia’s oil installations, which is a major producer and exporter of oil and also one of the largest oil exporters in the world.

In September 2019, Saudi Arabia temporarily cut production to half as a result of attacks on its infrastructure that were claimed by Yemeni Houthi rebels supported by Tehran, causing the price of Brent to jump by almost 20% in one day as a result.

A number of experts have pointed out that previous oil shocks have come into play, such as the OPEC embargo against Israel’s allies during the Yom Kippur War some 50 years ago, and then again after the Iranian revolution in 1979.

As a result of the shocks, crude prices jumped within a few months, bringing the economies of developed countries to their knees within a matter of months.

The US is now one of the top producers in the world and OPEC is claiming that it is less politicized than before, so they are less at risk this time around.

There is a greater likelihood of immediate effects when it comes to gas consumption.

It is important to note that the price of TTF, the European benchmark for natural gas, rose by a third during the middle of October, compared to the price before the attack on October 7.

The war poses a serious threat to the regional natural gas market and could negatively affect European LNG (liquefied natural gas) supplies as winter approaches, according to Innes.

While the European gas inventories are almost full, they are not high enough to make it through the winter in case all imports shut down, according to Giovanni Staunovo, a senior analyst at UBS.

On instructions from the country’s authorities, Chevron has suspended operations at its Tamar platform, located off the coast of Israel, on a temporary basis.

It has been estimated that this gas field represents about 1.5% of global LNG supply, according to Innes, with the majority of supply going to the domestic market, followed by Egypt and Jordan.

In the event that Leviathan, Israel’s largest gas field, were to shut down, the consequences would be even more grave, say analysts, who remind us that at the beginning of the war in Ukraine, prices surged to a historic high of 345 euros per MWh.