Israel-Hamas war: Will oil prices keep increasing as attacks on Gaza continue?

The Israel-Hamas war: Will oil prices rise?. Following the outbreak of violence between Israel and Hamas, there were speculations regarding how the Middle Eastern energy crisis may affect energy production, which sent oil prices soaring.

As of Monday, the US benchmark West Texas Intermediate rose by 4.3% to $86.38 per barrel, while the global benchmark Brent Crude increased by 4.2% to $88.15 per barrel.

It is estimated that the price of Brent Crude and West Texas Intermediate decreased by 36 cents and 35 cents, respectively, on Tuesday. Despite the fact that neither Israel nor the beleaguered Gaza Strip are major oil producers, worries that the conflict may cause more instability in the region have roiled the markets.

In the Middle East there are some of the largest oil producers in the world, such as Iran and Saudi Arabia, as well as some of the most vital transportation routes, such as the Strait of Hormuz, which is often referred to as the biggest “oil chokepoint” in the world.

Is it likely that oil prices will continue to rise in the near future?

Despite the fact that a lot depends on the way the war develops, economists predict that the immediate impact of this war will probably be minimal on energy prices in the near term.

It is important to note that the conflict between Israeli soldiers and Hamas fighters in Israel and Gaza, which has already claimed 1,800 lives, does not directly involve oil-producing countries, as opposed to the surge in crude prices that followed Russia’s invasion of Ukraine last year.

It is estimated that the oil supply is not in immediate danger, according to a note from Morgan Stanley, but that could change if the violence spreads to neighbouring countries.

As a result of this event, I believe that the upside risk to crude prices is actually limited in the very near term, despite the speculative reaction we are seeing in the oil market at the moment,” Mike Rothman, president and founder of Cornerstone Analytics, told Al Jazeera.

According to Rothman, in addition, he does not anticipate that the conflict will have an impact on OPEC’s output or global demand in the long run, but other factors, such as falling global oil stockpiles, may have an impact on the market as a whole.

Can there be any variables that can cause oil prices to increase even further in the future?

In the coming days, it is important to keep an eye on two important things: one is whether Iran will be involved in the fight, as well as Hezbollah, a Palestinian fighter organization with roots in Lebanon that is a supporter both of Iran and Hamas at the same time.

After at least three of its fighters were killed during an airstrike carried out by Israel on Monday, Hezbollah claimed responsibility for firing a barrage of rockets amid escalating border tensions.

As a result of a Wall Street Journal article that alleged Iranian security personnel assisted Hamas in its surprise attack on Israel on Saturday, Iran has denied any involvement in that attack.

Iran congratulated Hamas after the strike, but the US and Israeli militaries claim to have found no evidence to substantiate that Iran was involved in the attack.

What might be the impact of Iran’s involvement on the price of oil?

The former US President Donald Trump reinstated sanctions on Iran’s oil sector in 2018; however, as Washington and Tehran reopened negotiations in 2022 and 2023 over Iran’s contentious nuclear programme, Iranian oil exports and production increased as a result of the negotiations.

Iranian complicity in the Hamas attack would likely hurt those talks and result in additional US restrictions on Iranian energy.

According to Alan Gelder, an analyst at Wood Mackenzie, the recent spike in oil prices reflects concerns about the conflict becoming a wider conflagration that could involve Middle East regional players and their proxy agents.

As the conflict widens, the most immediate market impact could be more stringent US enforcement of Iranian exports, which have grown by over 400 kb/d this year. To avoid further escalation, we closely monitor regional and international diplomatic efforts.”

Bob McNally, president of Rapidan Energy Group, told CNBC on Monday that if Iran becomes involved in the crisis, oil prices may rise by $5 to $10 per barrel.

Nevertheless, Rothman expressed “serious doubts” about Israel openly engaging Iran militarily.

Tehran has expressed its support for the Hamas attack, but that verbal support falls far short of the evidence Israel needs to respond kinetically to Iran.

During previous Israeli-Palestinian conflicts, what happened to oil prices?

Recent increases in oil prices have reminded many of the 1973 oil crisis following the October War, in which Egypt and Syria launched a surprise attack on Israel to retake territory.

The battle fifty years ago began on a Jewish holiday, similar to Hamas’ attack on Saturday.

As a result of US support for Israel during the 1973 conflict, Arab oil-producing nations cut oil output and imposed embargoes on the US and some of its allies, causing oil prices to quadruple.

However, things have changed quite a bit since then.

There is a “near-zero probability” that the price will rise so sharply this time, Rothman said.

Due to the decades of ill-will generated by the large oil-consuming nations, many in OPEC concluded the 1973 embargo was a huge mistake.