Oil rises as conflict between Israel and Hamas reignites volatility in the Middle East, with Iran in the spotlight

2023-10-09 12:49:07

Oil prices rose after a shock attack on Israel by Hamas brought renewed instability to the Middle East.

More than 1,100 people have died since conflict between Israel and the militant group Hamas erupted over the weekend. US futures rose up to 5.4% in New York, reaching $87 per barrel.

Although Israel’s role in global oil supplies is negligible, the conflict threatens to engulf both the United States and Iran. The latter has become an important source of extra oil this year, easing the squeeze on markets. Increased US sanctions on Tehran could restrict these shipments.

Any retaliation against Tehran – amid reports that it helped plan the attacks – could endanger the passage of ships through the Strait of Hormuz, a vital canal that transports much of the world’s crude oil and which the Iranian government has already threatened to close. Iran denied on Monday that it was involved in the attacks.

The surge following the attacks added a new wave of volatility to a market that has seen considerable swings over the past month. In late September, Brent was on track to rise as high as $100 per barrel as cuts from Saudi Arabia and Russia squeezed the market, before retreating sharply last week as concerns about consumption and financial flows pushed prices sharply downward.

Key market indicators rose at the open on Monday, indicating growing concerns about tight supply. The difference between Brent’s two closest December contracts widened by $1.60 per barrel from Friday’s close, a significant move for the closely watched spread.

The hostilities reduce expectations that Saudi Arabia will cut or eliminate its 1 million barrels per day of production restrictions, Citigroup Inc. analysts Ed Morse and Eric Lee said in a note. The risks that Israel will attack Iran are also growing, they added.

Still, Morgan Stanley analysts said in a separate note that they thought the impact of the conflict would be limited. For now, they do not expect repercussions in other countries, which means there will be a weak long-term impact on crude oil prices.