The escalating war between Israel and Hamas is expected to threaten the oil market amid fears that other nations might intervene and possibly disrupt shipments in the Middle East.
Though Israel doesn’t have significant energy production, there is a risk the war could spread to major energy producers in the Middle East and affect oil and gas supply.
The oil prices jumped globally at the start of the conflict but have since eased as there was no immediate disruption to supply flows. However, with Israel planning a ground, air and sea attack, the war is expected to prolong and involve new actors.
Global experts and analysts believe that the Israel-Gaza conflict could lead to a similar situation to the Ukraine war, during which oil prices inflated to over $110 per barrel, reaching a 14-year record high.
Crises in the Middle East
The Middle East is a significant contributor to global oil supplies accounting for nearly a third of global oil supply. Any instability in the region, like the Israel-Gaza conflict, could lead to speculative price hikes due to possible supply disruptions.
Moreover, if the conflict spreads to other oil-producing nations like Iran, the global economy could face severe repercussions.
Iran and the US had been negotiating a new nuclear agreement that would have allowed Iran to export more oil. However, the US could impose sanctions on Iran if it’s implicated in Hamas attack on Israel, which could strain the oil market. Iran could retaliate by disrupting energy flows from OPEC neighbors via the Strait of Hormuz.
Middle Eastern crises have often led to spikes in oil prices, affecting global inflation rates and trade balances.
Inflation
Rising crude oil prices can also lead to high inflation globally. Major economies like the US, India and China, which are also significant oil importers, could experience high imported inflation if oil prices remain elevated.
The high prices can affect production costs across industries and increase energy costs for businesses and households, according to the Economic Times.
IMF Warning
The Israel-Hamas conflict has raised concerns about its potential impact on the world economy. IMF chief economist Pierre-Olivier Gourinchas said Tuesday that IMF research shows that a 10 percent increase in oil prices could weigh down on global growth by 0.15 percentage points and increase inflation by 0.4 percentage points.
The International Energy Agency said the risk of oil supply disruptions due to the war is limited but that it stands ready to intervene in markets if necessary.
Saudi-Israel Deal
The normalization talks between Saudi Arabia and Israel brokered by the US was expected to increase the oil output. However, Saudi Arabia has suspended talks on potentially normalizing ties with Israel due to the Israel-Hamas violence, according to a report in AFP.
Saudi foreign ministry called for “an immediate ceasefire in Gaza and its surroundings” and the urgent delivery of humanitarian aid.
Saudi and Russia have already announced voluntary supply cuts until the end of 2023, pushing oil prices to 10-month highs in late September.
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