Hamas-Israel Conflict Raises Global Fears of Prolonged High Crude Prices    - The Top Society

Hamas-Israel Conflict Raises Global Fears of Prolonged High Crude Prices   

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Crude oil prices soared to staggering heights, reaching $89 a barrel on Monday, amid escalating concerns regarding the recent attack by Hamas on Israel. These developments have intensified worries about the Middle East’s stability and their potential impact on oil production from major suppliers.

The international oil benchmark, Brent, surged by as much as 5.2 percent during early trading in Asian markets, eventually settling at 3.8 percent higher, at $87.83. Simultaneously, its U.S. counterpart, WTI, rose by 4 percent to $86.07. These abrupt price surges have reignited fears of a prolonged period of high oil prices, which could further fuel inflationary pressures across the globe.

Earlier in September, Brent had breached the $97 per barrel mark due to supply cuts orchestrated by significant oil producers, including Saudi Arabia and Russia. However, it subsequently experienced an 11 percent drop last week amid concerns over the deceleration of global economic growth.

Prior to the recent Hamas-Israel conflict, both WTI and Brent futures had experienced a sharp decline, shedding approximately $10 per barrel. This downturn was primarily attributed to apprehensions surrounding high interest rates and the prospect of slowing economic growth, which overshadowed the optimism that had led to a substantial rally in the third quarter. This rally had been driven by tightening physical crude oil balances, brought about by the enduring crude output reductions led by Saudi Arabia.

While Israel itself is not a significant oil producer, the ongoing conflict has raised alarms about the potential for wider regional instability. Moreover, it could lead to a more stringent enforcement of sanctions on Iranian oil, as Iran’s foreign ministry has expressed support for Hamas’s actions, deeming them an act of self-defense.

In a further twist of uncertainty, Israel temporarily suspended production at its offshore Tamar gasfield. This development resulted in European gas futures prices surging by approximately 13 percent, highlighting the intricate web of consequences that geopolitical tensions can spin across energy markets.

The escalating conflict also poses challenges for the Biden administration’s diplomatic efforts. Their aim to facilitate a deal between Saudi Arabia and Israel for normalized relations could be hampered by the current turmoil. This, in turn, might influence Saudi Arabia’s willingness to increase its oil output, adding another layer of complexity to the evolving global energy landscape.

“The Israeli government is vowing an unprecedented response and it is hard to envision how Saudi normalisation talks can run on a parallel track to a ferocious military counteroffensive,” said Helima Croft, head of global commodity strategy at RBC Capital Markets.

The White House has adopted a “soft approach” to enforcing sanctions on Iranian oil production, she added, but this would be “difficult” to maintain if Israel accuses Tehran of providing support to Hamas.

US authorities have not verified any such link, and in an interview with CNN on Sunday, the US Secretary of State, Antony Blinken, stated that

“we have not yet seen evidence that Iran directed or was behind this particular attack”.

Israel Vows to “Destroy Hamas” as Death Toll Rises; U.S. Citizens Among Victims   

According to Vivek Dhar, an analyst specializing in mining and energy commodities at the Commonwealth Bank of Australia, he remarked that “Our point of concern is very much around oil supply and exports out of Iran.” 

Dhar noted that if the United States officially confirms the involvement of the Revolutionary Guard in the attack, it would likely lead to stricter enforcement of the existing sanctions on Iran. These sanctions have seen lax enforcement this year due to apprehensions about elevated fuel prices. He further suggested that this scenario could propel Brent oil prices beyond the $100 per barrel mark.

“If we do see blame assigned by the US to Iran for this, we could see a lot of this year’s increase in Iran’s oil exports reversed,”

Dhar said. “The impact on the market would be about 0.5 to 1 per cent of global supply — that is sizeable.”

The weekend attacks triggered a more extensive decline in various other assets. European stocks experienced losses, with the Stoxx Europe 600 index down by 0.1 percent, and Germany’s Dax declining by 0.7 percent. Meanwhile, the dollar strengthened, gaining 0.5 percent against a basket of comparable currencies.

Simultaneously, gold prices saw a 1 percent increase, reaching $1,850 per troy ounce. This rebound comes after a seven-month low and is indicative of investors’ typical flight to the precious metal during periods of uncertainty.

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