Oil prices soared more than 4% today (Oct. 9), after the terrorist group Hamas launched an attack on Israel two days earlier, infiltrating the country by land, sea, and air, in a conflict that has already claimed 1,100 lives on both sides.
The fighting has had no immediate effect on the world’s oil supply. Israel has “virtually no crude oil and condensate production,” as per the US Energy Information Agency (EIA), which pegs the nation’s annual oil producing capacity at just 300,000 barrels per day. (In contrast, the US has a capacity of 18.1 million.) The Palestinian territories, too, produce next to no oil.
However, the conflict between the contentious neighbors is bound to escalate, as Israeli prime minister Benjamin Netanyahu vows “mighty vengeance” and retaliates with airstrikes on Gaza. With tensions growing, so is the strain on the outlook for the entire Middle East region, which contributes a third of the global oil supply. That’s especially because the Palestinian militants are reportedly backed by Iran, which is the world’s seventh-largest oil producer.
“If western countries officially link Iranian intelligence to the Hamas attack, then Iran’s oil supply and exports face imminent downside risks,” Vivek Dhar, Commonwealth Bank’s director of mining and energy commodities research, told CNBC yesterday (Oct. 8).
Charted: Israel-Hamas conflict makes oil prices surge
Quotable: A precarious oil market
“Global oil inventories are low, and the Saudi and Russian production cuts will lead to more inventories draws over the next few months. The market will eventually have to beg for more Saudi supply, which I believe, will not happen sub $110 Brent.”
—Hedge-fund manager and energy trader Pierre Andurand in an Oct. 8 post on X
Country of interest: Iran
Although Tehran denied direct involvement, Iranian leaders endorsed the attack on Israel by Hamas as an act of “self-defense.”
The surprise attack, which coincided with the 50-year anniversary of the 1973 Yom Kippur War, is stoking fears of history repeating itself. Back in 1973, the Organization of Petroleum Exporting Countries (OPEC) levied an oil embargo against Israel’s allies. But Egypt and Syria led the attack on Israel then; without the involvement of Arab nations this time, another Arab oil embargo is unlikely.
Still, oil prices will struggle to hold steady in the face of a prolonged crisis. Here are three potential supply issues to look out for:
🇸🇦 Iran could cripple Saudi oil production, like it apparently did with drone strikes via Yemeni proxies in 2019.
🇺🇸 Washington could tighten up its policing of trade in sanctioned oil and push back harder on Iranian oil smuggling, which could force Iran to cut output.
🇮🇷 If sanctions are more strictly enforced, Iran could revive an old threat from 2011: blocking the Strait of Hormuz, a narrow but significant shipping route that handles almost a third of the world’s waterborne oil, according to Bloomberg.