Israel-Hamas War Drives Surge In Crude Oil Prices. Here's What Lies Ahead
Any escalation of Israel Hamas war involving Iran pose a risk to the crude supply especially through the Strait of Hormuz.
Brent crude oil prices surged over 5% during early trade on Monday amid worsening political instability in the Middle East due to the Israel Hamas war.
Brent crude prices reached an intra-day high of $89 per barrel, while US West Texas Intermediate crude rose by 5.11% to reach $87.02 per barrel. This price surge followed a period of consolidation, during which Brent prices dropped by over 10% in the week ending Oct. 6.
"We have seen (a) peak in pricing from the actual conflict itself," David Lennox, resource analyst at Fat Prophets, said. "This sort of pricing usually happens quickly as the news breaks. The price impact from that point of view is locked in."
Lennox said if there are any developments regarding pointing fingers at those responsible for planning the attacks, "we might see an increase in pricing over the coming days".
If Iran Gets Involved...
Since Israel or Palestine are not key oil players, there is no direct impact on crude oil supply and production. However, the war does sit in an important, wide oil-producing region, and Iran remains a key factor. Iran has long backed the Hamas militant group, and prices hinge on further escalation of the war, making it a wait-and-watch situation.
Prices could see an impact if Iran becomes involved in this situation, said Peter McGuire, chief executive officer at XM Australia, who expects higher prices until this situation eases. "Keep a close eye on (the) Strait of Hormuz."
The Strait of Hormuz, located at the mouth of the Persian Gulf, serves as a crucial shipping route, handling approximately one-third of the world's waterborne oil. With about 17 million barrels of oil transported through this passage daily, any escalation involving Iran poses a risk to the crude supply. Iran has a history of targeting merchant ships in this chokepoint and has previously threatened to block transit.
If Iran's involvement in the attacks is officially concluded, Iran's daily crude oil production of about 3.15 million barrels per day as of August stands at risk.
"There is sufficient capacity inside OPEC to cover the 3 million barrels of oil we lose if Iran is put under sanctions," Lennox said.