Quick Context: Israel-Hamas War
Middle East instability always boosts crude—but real barrel impacts will depend on whether this conflict tightens sanctions against Iranian exports or scuttles the US-brokered Saudi-Israeli deal.
Ahead of drafting this write-up I also had the opportunity to provide some early thoughts with the Financial Times (here), Heatmap News (here), and CBC News (here) about how the Israel-Hamas War might affect oil markets.
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It’s impossible to overstate the enormity of the heinous Hamas attacks in Israel and subsequent Israeli counterattacks in Gaza; while the market impacts pale in comparison to the human loss, conflict in the Middle East is a very real political risk factor for crude prices.
The Israel-Hamas war has direct implications for already-volatile oil markets; specifically, these attacks threaten to entangle Iran and its recently buoyant crude exports, which may be pressed lower again if Iran’s direct involvement is proven and the conflict escalates
The attacks also complicate ongoing US-led negotiations between Saudi Arabia and Israel regarding official recognition for the latter, a defense deal for the former, and potentially oil market supply support in early 2024.
In sum, the Israel-Hamas War is expected to be mildly near-term price positive for crude given risk premia and pressure on recently-higher Iranian exports, though the volatility of the situation risks steeper price gains should the conflict further escalate.
The tragic attacks over the weekend perpetrated by Hamas militants against Israeli civilians left, at latest count, more than a thousand Israelis dead and thousands more injured. Counter attacks by Israeli Defense Forces (IDF) in the Gaza Strip have already claimed hundreds of Palestinian lives and displaced more than a hundred thousand, with more suffering surely to come. Many are calling this “Israel’s 9/11”, referring to the staggering number of lives lost, the scale of the Israeli intelligence failure, the inevitable ferocity of the response, and the long-term impacts of how this will rewrite Israeli policy toward the Gaza Strip.
Ultimately, the market impacts pale in comparison to the staggering and growing human loss. But conflict in the Middle East is about as classic a political risk factor as there could possibly be for crude prices—and, in this case, the enormity of this situation cannot be overstated. Of course, neither Israel nor the Palestinian Territories are major factors for the oil market in and of themselves; instead, any tangible impacts to global physical balances will land squarely at the export terminals of two intimately intertwined regional powers: Iran and Saudi Arabia, both of which also have seen some of the biggest changes to their production levels over the past year.