Global oil prices have surged as tensions escalate in the Middle East due to the conflict between Israel and Gaza. Brent crude, the international benchmark, rose over $3 to reach $87.68 a barrel, while US oil prices also experienced an increase.
While Israel and the Palestinian territories are not significant oil producers, the Middle East region accounts for nearly one-third of the world’s oil supply. The recent intensification of hostilities between Israel and Hamas has raised concerns that oil production and transportation in the region could be disrupted.
Hamas claimed responsibility for the attacks on Israel, stating that it received support from Iran, one of the world’s largest oil producers. Iran, however, denied involvement in the conflict during a UN Security Council meeting in New York.
Energy analysts suggest that the surge in crude oil prices is primarily due to concerns about the potential for a broader conflict that could impact major oil-producing nations like Iran and Saudi Arabia. If the situation escalates in Iran, which has been accused of supporting Hamas attacks, up to 3% of the global oil supply could be at risk.
The Strait of Hormuz, a vital oil trading route, could also be affected by the conflict. Approximately 20% of the world’s oil supply passes through this strait, and any disruption could further impact global oil markets.
The uncertainty surrounding the situation has led to increased investments in US Treasury bonds and the US dollar as investors seek safe-haven assets during times of geopolitical instability.
Overall, analysts anticipate that oil demand may exceed supply in the final quarter of the year, which could continue to support higher oil prices. This situation comes after a period of rising oil prices as oil-producing countries, including Saudi Arabia, have implemented production cuts to stabilise the market.
The conflict in the Middle East adds to the existing challenges faced by the global energy market, which has been dealing with supply constraints and increasing demand as economies recover from the COVID-19 pandemic.