Oil spikes as “chances of a mistake” run high in the Middle East

Analysts say Netanyahu is on the backfoot, and he cannot be seen as weak. This could lead to further escalation and disruption in oil supply.
Rockets are fired toward Israel from the Gaza Strip, Sunday, Oct. 8, 2023. (Photo | AP)
Rockets are fired toward Israel from the Gaza Strip, Sunday, Oct. 8, 2023. (Photo | AP)

Crude oil prices jumped 3.5% on Monday as markets worried about the possibility of a full-scale war between Israel and Iran, which is widely seen as backing the Hamas which unleashed a torrent of attacks on the Jewish nation.

“Hamas attack has IRAN written all over it,” said analysts from Incred Equities. “Israel has been pushed back so ferociously that overreaction is high probability.  It’s a desperate fight for him [Netanyahu] now and chances of mistake are high,” it added. 

On October 7, over 2,000 rockets were launched from Gaza into Israel by the Hamas militants. In the chaos that ensued, multiple terrorists crossed border fencing from Gaza Strip and moved into Israel, attacking civilians and soldiers and taking them hostage. 

As the conflict enters into the third day, Israel is clearly on the backfoot. Their senior commander has been captured, civilians are being killed (and filmed), and dead bodies of soldiers are being desecrated. 

Oil prices jumped on the concern that the ongoing Israel-Hamas conflict could disrupt the global oil supply. Israel and Palestine are not major oil producers but the Middle East region accounts for almost one-third of the global oil supply. 

The conflict sits at the doorstep of a key oil-producing and export region for global consumers. 

The biggest concern is whether Iran, one of the biggest producers of crude oil, will be dragged into the conflict, given that its president, Ebrahim Raisi, has been openly expressing his support for continued attacks on Israel. 

“Middle east is boiling again, and supply of crude will be a problem. An attack on Iran will lead to massive problems and a spike in crude,” said the analyst. 

Moreover, on Monday, Israel ordered US oil giant Chevron to pause production at the Tamar natural gas field off the country's northern coast. 

Israel may strike back even harder

Hamas's assault on Israel was the biggest escalation between the two sides for decades. 

“Israel will have to show disproportionate punishment to a nation that funded and trained Hamas in this operation – Most likely Iran,” said Incred Equities. Israel has to give a disproportionate response. There’s no way the Israeli Prime Minister Netanyahu, can be seen as weak, they noted.

“There are possibilities of Israel being attacked from other fronts as well. Most likely from the North as they are embroiled in the South fighting Hamas,” they noted. While all this is happening on the southern border of Israel, the northern part is highly vulnerable. Hezbollah and Palestine have a golden opportunity to attack Israel, they noted.

“Who knows Jordan and part of Syrian terrorists also get a golden pass to attack Israel. Middle east is on the boil, we fear hugely disproportionate action by Israel. It may attack Iran as well,” the analysts said.

Perhaps to preclude such a possibility, the US has sent aircraft carrier USS Gerald R. Ford to the Eastern Mediterranean sea.

This will be the second time in two years that oil prices will spike in response to international hostilities. In February 2022, following Russia's invasion of Ukraine in February oil prices soared. The oil prices traded at as high as USD 120 a barrel in June last year.

The oil prices cooled down and fell back to USD 70 a barrel in May this year, but have steadily risen since then as producers have tried to restrict output to support the market.

Saudi Arabia with other members of Opec+ said it would make cuts of a million barrels per day in July in an attempt to shore up flagging prices. 

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The New Indian Express