The unexpected attack on Israel by Palestinian militant group Hamas has caused a surge in oil prices and raised longer-term concerns about the future cost of energy.
Over the weekend, Hamas fighters broke through Israeli defences and carried out a number of attacks, causing hundreds of deaths and taking many civilians and soldiers hostage.
At least 1,000 people have died as the conflict between Israel and Hamas continued for a third day, with the Israeli Defence Force (IDF) intensifying its military response against militant bases.
Energy prices
Israel is not an especially large producer of oil, but there are concerns that the conflict could spill over and hit global energy prices.
Bloomberg reports that analysts and energy traders are fearing an escalation of tensions, as other countries get involved in the Middle East conflict.
The US has already announced that a carrier group is being redeployed to support Israel, with other Israeli allies also said to be preparing to send military aid.
Iran
Israeli intelligence officials accused Iran of helping plan Hamas’ attacks, although Iranian diplomats have rejected this. Despite this denial, the BBC reports that Iranian president Ebrahim Raisi has expressed support for the attack.
Helima Croft, managing director of global commodity strategy research at RBC Capital Markets, said in a note that Iran would be a “very big wildcard”.
So far, US president Joe Biden’s administration has adopted a “soft approach” to sanctions enforcement on Iranian oil production, Croft said. However, this would be “difficult” to maintain in light of Israel’s accusations against Tehran.
Longer-term effects
Oil prices jumped more than $4 per barrel in early Asian trade today (9 October).
Pierre Andurand, chief investment officer at Andurand Capital, a specialist in energy trading, said on Twitter/X that the impact would be felt in the longer term:
“As the Levant is not a large oil producing region, it is unlikely to impact oil supply in the short term. And therefore one should not expect a large oil price spike in the coming days. But it could eventually have an impact on supply and prices.
“Global oil inventories are low, and the Saudi and Russian production cuts will lead to more inventories draws over the next few months.”
A potentially historic deal between the US, Saudi Arabia and Israel that would have normalised relations between Riyadh and Tel Aviv was rumoured to be in the offing before the attacks. Middle Eastern experts have warned that Hamas’ attack may have made the deal harder to achieve.
Wider energy picture
Before the news of the attacks, energy prices were already rising after reports of strikes and damaged oil pipelines.
Reuters reported on Friday (6 October) that workers at Australian liquified natural gas (LNG) plants voted to restart industrial action after the union accused Chevron, the owner of both sites, of “reneging” on a deal recommended by Australia’s industrial relations tribunal.
Bloomberg also reports that prices for natural gas spiked after a leak was discovered on a pipeline in the Baltics.