CRUDE oil prices spiked higher in the wake of a massive Hamas attack on Israel but the relatively modest increase masks the risk of an escalating Middle East conflict.
Global benchmark Brent crude futures jumped as much as 4.1% in early Asian trade on Monday, reaching a high of US$88.15 a barrel, up from the close of US$84.58 on Oct 6.
The jump still leaves Brent contracts under the levels that prevailed for most of last week and below the recent one-year high of US$97.69 a barrel, reached on Sept 28.
The early price action in the wake of the weekend attacks launched by Hamas militants from their Gaza stronghold against southern Israel is likely a reflection that the violence holds little immediate threat of interrupting global oil supplies.
At least 700 Israelis were killed and dozens abducted when Hamas fighters surged across the border on Sunday, while more than 400 Gaza residents have died in retaliatory attacks launched by Israel.
Israeli Prime Minister Benjamin Netanyahu said his nation is now at war, vowing “mighty vengeance”, while Iran’s President Ebrahim Raisi telephoned the Hamas chief to congratulate him for the “victory”.
These reactions from two key leaders in the Middle East underscore just how the Hamas attacks are likely to upend relationships in the Middle East.
The immediate risk is that Israel concludes Iran was an active participant in the Hamas actions and ups covert actions against the Islamic state.
This will place Saudi Arabia and the United Arab Emirates in the uncomfortable position of trying to normalise relations with Israel at a time the Jewish state is engaged in major conflict with Hamas, which will undoubtedly result in significant Palestinian civilian casualties in Gaza.
It was most likely part of the Hamas plan to scupper rapprochement between Arab countries and Israel and force everybody back into their historic antagonistic roles.
What’s less clear is what is in the attacks for Iran. By supporting Hamas, it’s likely that Tehran will place its detente with Saudi Arabia at risk, as well as raising the possibility that the administration of US President Joe Biden will abandon its softly-softly approach that has seen Iran increase its oil exports in 2023.
Iran’s crude exports started to rise sharply from May onwards as US enforcement of sanctions appeared to be relaxed as part of Biden administration’s efforts to engineer a grand peace in the Middle East.
Exports rose from 1.35 million barrels per day (bpd) in April to a high of 1.79 million bpd in August, the most since November 2019, according to data compiled by commodity analysts Kpler.
Increasing exports from Iran have suited the US administration as it helps temper the price increase caused by the Saudi decision to cut an additional one million bpd of output from July onwards, a move that coupled with a similar reduction of 300,000 bpd by Russia has tightened global oil supplies.
Overall, what the attacks by Hamas have likely achieved, for now at least, is place a pause on moves to normalise political relationships across the Middle East.
An extended, and bloody, conflict in Gaza will make it hard for the process to restart and the risks of a wider conflict will now have to be factored into oil markets.
There is no certainty as to how the current situation will play out but uncertainty and heightened risks are likely bullish for crude oil prices. — Reuters
Clyde Russell is a columnist for Reuters. The views expressed here are the writer’s own.
