Conflict between Israel and Hamas raises concern over rising oil prices

After months of sharp production cuts by Saudi Arabia and Russia, and Hamas’ attack on Israel, oil investors this time focused on Iran.

Following the sudden attack by Hamas militants across the Israeli border, oil investors are focusing on the possibility of the conflict spreading to the rest of the region.

Crude oil investors do not expect a major price rise as there is no immediate threat to supply. But all eyes are on Iran, a major oil producer and a key supporter of the Hamas group that launched the attack on Israel.

A retaliatory strike against the Islamic Republic could reignite fears about the Strait of Hormuz, a vital maritime artery that Iran has previously threatened to close. There is also the possibility that the United States will take new measures against the renewed flow of oil exports from Iran.

THE SAUDIS ARE NOT EXPECTED TO MAKE CUTS

No one expects the Saudis, who are negotiating with the United States to normalize relations with Israel, to turn off the taps in solidarity with the Palestinians.

At worst, the conflict is believed to derail normalization talks and, as a result, disrupt additional flows of Saudi oil.

On the other hand, the Energy Minister of the United Arab Emirates, one of the important members of OPEC, was clear in his statement on Sunday that the conflict will not affect the group’s decision-making mechanism.

Energy Minister Suhail Al Mazrouei told reporters in Riyadh: “We are not dealing with politics; “We manage by supply and demand and we do not take into account what each country is doing,” he said.

‘IF THEY ATTACK IRAN, PRICES WILL INCREASE IMMEDIATELY’

According to Rapidan Energy Group president and former White House official Bob McNally; The “oil cut-off scenario” will occur if the conflicts spread to Iran, but for now it does not seem likely.

After OPEC member Iran declared its support for the Palestinian attack, Israel’s possible attack in response could cause surges in oil prices.

In his statement on the issue, McNally said that if Israel responded by attacking any of Iran’s infrastructure, crude oil prices would immediately rise due to the perceived risk of disruption.

Iranian oil has become increasingly important to the market as shipments rise to a five-year high.

THE RISK IN THE US IS INCREASING

Pierre Andurand, founder of Andurand Capital Management, says that although the attack is unlikely to affect oil supplies in the short term, it could eventually have an impact on supply and prices.

This weekend’s clashes could prompt President Joe Biden’s administration to more aggressively address Iran’s oil imports, primarily to China.

“I think this development will mean stricter enforcement of Iranian sanctions, so there will be less Iranian oil in the future,” Andurand said.

In a more extreme scenario, Iran could respond to any direct provocation by closing the Strait of Hormuz, located just north of the Sea of ​​Oman. Approximately 17 million barrels of crude oil are transported through the Strait of Hormuz every day. Tehran threatened to close the strait when sanctions were imposed on the country in 2011, but eventually backed down.

THE OIL COURT CREATED A SECURITY PILLOW

Reducing daily oil production to approximately 9 million barrels, with the voluntary oil production cut of 1 million barrels per day implemented by Saudi Arabia starting in July, ensures that Riyadh has excess production capacity that can be used in case that the current crisis will cause a disruption.

This safety cushion of idle capacity is another reason why investors should not expect a sudden rise in prices when markets reopen.