Turmoil in the Middle East has triggered a soaring in oil prices due to concerns the conflict between Israel and Gaza could cause a disruption in oil output from the region. Brent crude, the international yardstick for oil prices, witnessed a surge of $2.25 per barrel, reaching a high of $86.83. Simultaneously, prices in the U.S. experienced a similar uptick.
Despite not being oil producers themselves, the disturbance between Israel and the Palestinian territories threatens to influence the Middle Eastern region, which is responsible for approximately one third of the world’s oil supply. The conflict researched new intensity with Hamas launching a vehement assault on Israel-the bitterest escalation in hostilities witnessed between the two sides for many decades.
This attack, sharply rebuked by Western nations, was claimed by a Hamas spokesperson to have been endorsed by Iran, a country known as one of the world’s largest oil producers. However, Iran staunchly denied any involvement in the assault during a UN Security Council meeting in New York. Nevertheless, Iranian President Ebrahim Raisi bestowed his support for the attack.
In direct response to the conflict, Chevron, the U.S. oil conglomerate, was directed by Israel to halt production at the Tamar natural gas field just off the Northern coast of the country, as it lies within striking distance of rocket fire from Gaza. The energy ministry stated that there were adequate fuel reserves from other sources to meet Israel’s energy needs. In the meantime, operations at Leviathan, Israel’s largest offshore gas field, owned by Chevron, continue to proceed as usual.
According to energy analyst Saul Kavonic, such global spikes in oil prices are triggered by not only the current conflict, but also the looming possibility of a wider conflagration potentially drawing in major oil-producing nations like Iran and Saudi Arabia. The intensifying situation is evidenced in the rise of the price of West Texas Intermediate crude, the U.S. benchmark, by $2.50 a barrel touching $85.30.
The escalation of this conflict into Iran could place as much as 3% of the global oil supply at risk, warns Kavonic. Caroline Bain, Chief Commodities Economist at Capital Economics, threw light on another angle of this crisis, pointing to Iran’s rising oil production levels throughout the year, despite U.S. sanctions.
A brewing uncertainty over the course of events is driving investors toward the safe haven of US Treasury bonds and the dollar. In response to the plummeting value of its currency, the shekel, Israel’s central bank has commenced the selling of up to $30bn of foreign currency to stabilize markets.
Furthermore, the escalating geopolitical uncertainty echoes the scenario following Russia’s invasion of Ukraine in February 2022 when oil prices hit a shocking $120 a barrel. After retreating to a manageable $70 a barrel in May, prices have been climbing slowly but steadily, thanks to intentional production restrictions from producers to bolster the market. The question remains of how Opec+, a group of major oil producing countries accounting for about 40% of the world’s crude oil, will react to this upheaval as their choices hold the power to dictate oil prices.
