Global oil prices are rising amid the conflict between Israel and Hamas, sparking fears the turmoil could spread across the Middle East and threaten the world’s oil supply.
Both U.S. and global oil futures traded roughly 4% higher at around $86 a barrel on Monday after Hamas militants attacked a rash of Israeli towns over the weekend during a major Jewish holiday, although crude oil was trading slightly lower early Tuesday. The fighting has raised concerns that oil could cross the $100 per barrel threshold, compared with its current level of about $86, according to S&P Global.
While Israel is a small player in oil production, with just two oil refineries with a capacity of just under 300,000 barrels per day, the conflict risks involving other Middle East nations that are major producers, analysts noted. Of particular note is Iran, which U.S. and Israeli officials say is a primary supporter and funder of Hamas.
Iran, however, has denied any involvement in the attacks, and the Biden administration has said that while Tehran is “broadly complicit” in supporting Hamas terrorism, it has seen no evidence of a direct Iranian role in planning or carrying out the recent attack on Israel.”
The conflict could “become a wider conflagration,” drawing in the proxy agents of “Middle East regional players that are major oil exporters,” which could have an effect on oil prices, according to Alan Gelder, vice president of refining, chemicals and oil markets at energy research firm Wood Mackenzie.
“The most immediate market impact could be more stringent enforcement of [restrictions on] Iranian exports… by the U.S., if the conflict widens,” Gelder told CBS MoneyWatch.
The combination of new U.S. sanctions against Iran, as well as risks to shipping and infrastructure across the Middle East, could put at risk about 500,000 barrels per day of Iranian oil exports, S&P Global said. That could be an issue given that global supplies of oil were tight even before the conflict, which means that any impact could ripple throughout the world economy.
Will gas prices go up because of Israel?
Iranian oil production has surged by 700,000 barrels per day as Washington relaxed its enforcement of sanctions against Tehran, CNN reported, citing Brussels-based think tank Bruegel. However, if Washington tightens sanctions against Iran, that could limit its petroleum output, potentially affecting global oil and gas markets, according to Tom Kloza, global head of energy analysis for the Oil Price Information Service.
“Under some worried-about scenarios, tougher sanctions might suppress the growth in Iranian output we’ve seen so far in 2023,” Kloza told CBS MoneyWatch. “Under the most drastic circumstances, an Israeli attack on Iran might alter all the calculus for Middle East crude.”
However, U.S. consumers may not notice much of an impact at the pump, at least in the short term, experts said.
“Oil prices are up, but that’s much more a knee jerk reaction to the turmoil in the Middle East,” said Patrick De Haan, head of petroleum analysis at GasBuddy, told CBS MoneyWatch. “The major concern is … that Israel and Iran could get into conflict. That would be problematic [for U.S. gas prices.]”
Even if oil prices continue to rise, the impact at the pump may be muted due to the seasonal dip in gas prices during the fall months, De Haan wrote on X, formerly known as Twitter. That’s because gas prices typically decline in the autumn, following a traditional summer bump caused by a surge in demand as more Americans take vacations and hit the road.
“Even if oil went back to $90, these pressures still will win the tug of war, for now,” De Haan wrote.
Israel and gas prices
More than half of all crude oil reserves are in the Middle East, according to current estimates from the Organization of Petroleum Exporting Countries. However, neither Israel nor the Palestinian territories are key oil producers, data from the Energy Information Administration shows.
Yet the conflict between Israel and Hamas recalls the Yom Kippur war of 1973, when Egypt and Syria launched a surprise attack on Israel, noted Charles Gave of Gavekal Research in a Tuesday research note. While Israel was victorious, Middle Eastern oil exporters responded by cutting production and imposing an oil embargo on the nations that had supported Israel, he noted.
“The price of oil shot up from US$3.50/bbl to more than US$10/bbl, setting off a huge wave of inflation in the West,” causing deep recessions and budget deficits, Gave wrote. “Today, with supply and demand in the global oil market tightly balanced, there is a risk that supporters of one side or the other could target regional oil production, processing or transport, creating a squeeze in the supply of oil.”
