The surprise attack on Israel by the Palestinian Islamist group Hamas at the weekend marked the most significant escalation between the two sides in decades. It has already killed more than 1,000 people and raised fears that a potential broadening of the conflict could draw in Iran and lead to supply shocks. Brent and WTI rose more than four percent Monday in early Asian business.
“The violence in the Middle East is a clear risk to oil markets, with disruptions to production or transit potentially impacting supplies,” said Stephen Innes, head of trading at Singapore-based SPI Asset Management. The Middle East is home to almost a third of the world’s oil supply. “Historical analysis suggests that oil tends to see sustained gains after geopolitical events impact the region.”
Israel, which does not produce its crude, was hit by thousands of rocket attacks from Gaza in the wake of the attack. In response, the country carried out a wave of air strikes in the Gaza Strip that left scores dead and leveled many multistory buildings. Israel’s emergency services reported that many targets were Hamas military sites.
Western leaders have condemned the escalation between Israel and Hamas. But it also has focused on Iran, the world’s largest crude exporter, amid reports that Tehran supported the assault. If Western officials confirm Iranian involvement, it could lead to renewed efforts to ramp up enforcement of sanctions on Iran’s oil industry.
A senior Hamas official said Sunday that the militant group is holding more than 100 Israeli captives after the weekend assault, which included the group’s most extensive attack on Israel from the territory of Gaza in years. Those taken hostage include dual U.S.-Israeli citizens, the official told the Arabic language news outlet al-Ghad.
In Washington, the House Republican leadership calls on the administration to hold accountable the terrorists behind this attack. “The Biden Administration must be held accountable for its appeasement of these Hamas terrorists, including handing them billions of dollars,” said Rep. Steve Scalise, R-La., a potential speaker of the House if Republicans win control this fall.
Aside from Iran, the escalation in Gaza and its impact on regional stability could prompt the Saudi Arabian government to ramp up output. That could lift the price of Brent, the international benchmark, which topped $86 a barrel on Monday. This month, it fell as concerns about high-interest rates and slowing growth clouded the demand outlook. Brent had traded within a dollar of $100 a barrel earlier this year but then fell back. That starkly contrasts last year’s oil prices surged to above $100 a barrel. The price then plunged due to waning global growth expectations and oversupply. Brent is currently at $86.65 a barrel, and WTI is $88.39. The cost of crude had been sliding this summer, but a jump in tensions over the weekend sent it back up again.
