Crude oil prices experienced a sharp surge on Monday, with Brent crude, the international oil benchmark, briefly reaching $89 a barrel, marking a 5.2% increase in early Asian trading before settling at $87.69, a 3.7% gain. The spike in oil prices was fueled by growing concerns that the ongoing conflict between Hamas and Israel could escalate tensions across the Middle East and potentially impact oil production in the region.
While Israel itself is not a significant oil producer, there are fears that the conflict could lead to broader uncertainty in the region. This uncertainty could result in stricter enforcement of sanctions on Iranian oil, as Iran's foreign ministry has expressed support for Hamas's actions as an act of self-defence.
The conflict may also complicate the Biden administration's efforts to broker a deal with Saudi Arabia to normalize ties with Israel, which could influence the kingdom's willingness to increase its oil output. Helima Croft, Head of Global Commodity Strategy at RBC Capital Markets, noted that the Israeli government is vowing an "unprecedented response," making it challenging to pursue Saudi normalization talks amid a military counteroffensive.
Regarding sanctions on Iranian oil, Croft pointed out that the White House has adopted a "soft approach" in enforcing them. However, maintaining this approach could become "difficult" if Israel accuses Iran of supporting Hamas.
Pierre Andurand, a hedge fund manager specializing in energy trading, emphasized that there might not be an immediate threat to oil supplies but suggested that the market could tighten. He highlighted the significant increase in Iranian oil supply over the past six months due to weak enforcement of sanctions. He stated that there is a "good probability" that the US administration will tighten enforcement on Iranian oil exports.
The recent surge in oil prices follows a report in The Wall Street Journal, citing claims from senior Hamas members that officers of Iran's Islamic Revolutionary Guard had assisted in planning the militant group's attack on Israel. While US officials have not confirmed this connection, concerns are focused on potential impacts on oil supply and exports from Iran.
Vivek Dhar, a mining and energy commodities analyst at Commonwealth Bank of Australia, noted that US confirmation of the Revolutionary Guard's involvement in the attack could lead to more rigorous enforcement of existing sanctions on Iran. This could potentially push Brent crude prices above $100 a barrel, with the impact on the market estimated at approximately 0.5% to 1% of global oil supply, a substantial figure.
The situation in the Middle East remains fluid, and global oil markets are closely monitoring developments, as any significant disruption to oil production or supply could have far-reaching consequences on oil prices and global energy markets.
By fLEXI tEAM