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Global Oil Prices Surge Amid Middle East Tensions

Otis De Marie • October 17, 2023
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Global oil prices experienced a significant 4% surge on Monday as fears grew over the potential escalation of Hamas’s unprecedented weekend attack on Israel. Concerns loom that this conflict could spiral into a regional crisis involving oil-producing nations. This surge comes after recent fluctuations in global energy markets, marked by falling prices due to anticipated drops in demand, despite earlier months of rising prices primarily driven by production cuts from major players like Saudi Arabia and Russia.


While Israel itself does not produce oil, traders worldwide are closely monitoring the situation due to the potential impact on the broader region’s stability. The key factor influencing oil prices at this juncture is how the longstanding tensions between Israel and its arch-enemy, Iran, play out.
Israel has accused Iran of engaging in a form of proxy war by supporting various groups, including Hamas, which have launched attacks against Israeli territories. Although US Deputy National Security Adviser Jon Finer stated on Monday that the United States believed Iran to be “broadly complicit” in previous Hamas attacks due to the provision of weapons, training, and other forms of support, there is no direct evidence linking Iran to the recent assault.


Iran’s mission to the United Nations has denied involvement in the weekend attacks, emphasizing their unwavering support for Palestine while asserting that Palestine’s response is solely determined by Palestinians themselves.


However, the situation remains volatile and could escalate further. Israel has reported around 900 casualties, marking one of the bloodiest assaults in its history. Israeli Prime Minister Benjamin Netanyahu has formally declared war against Hamas, and Gaza is now under siege. If a concrete link to Iran emerges, some analysts speculate that US intervention cannot be ruled out, potentially leading to tighter enforcement of existing sanctions on Iran’s oil exports.


The United States reinstated sanctions on Iran’s oil in 2018 following the withdrawal from the nuclear deal negotiated during the Obama administration. However, Iran’s oil production has surged by 700,000 barrels per day this year, largely due to relaxed US enforcement of sanctions. The US could respond by monitoring tankers suspected of shipping Iranian oil more closely and tightening insurance provisions, potentially targeting trading houses primarily based in Hong Kong, mainland China, Oman, and the United Arab Emirates.


Nonetheless, Iran’s influence on the global oil market is limited. Data from Kpler shows that the country exported only approximately 1.4 million barrels a day of crude in the third quarter, accounting for a maximum of 1.4% of global supply.


A more remote but significantly serious risk to the oil market is the possibility of the conflict spilling over into the Strait of Hormuz, a narrow waterway off Iran’s southern border through which 37% of global seaborne oil exports transit daily. If Hezbollah, a Lebanese paramilitary group also backed by Iran, becomes further involved in the conflict, it could exacerbate tensions between larger regional powers, such as Iran and Saudi Arabia. Hezbollah claimed responsibility for firing missiles and artillery into three sites in Shebaa Farms, an area regarded by Lebanon as under Israeli occupation.


An intervention by Iran could potentially lead to disruptions in the flow of oil through the Strait of Hormuz, a situation that would significantly impact global energy markets. The United States has maintained a substantial military presence in the Gulf region, recognizing the vulnerability of this crucial trading route.


However, it is essential to note that any dramatic outcome, such as a significant escalation in the conflict, would require the current Israeli-Hamas conflict to extend far beyond its current geographic scope, potentially drawing in Iran or Iranian-linked groups. The situation remains fluid, and the global energy market is bracing for continued uncertainty as world leaders monitor developments in the Middle East closely.

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Angie3979

Will the current Israel–Hamas war cause an increase in fuel prices ?

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