Oil Prices Surge as Middle East Tensions Escalate: What’s Next for Global Economies?
Monday, military clashes between Israel and the Palestinian Islamist group Hamas caused oil prices to rise more than 2%. This was because of worries of a bigger war in the Middle East.
At 8:59 GMT, Brent oil was up $2.28, or 2.7%, to $86.86 a barrel, and U.S. West Texas Intermediate crude was up $2.44, or nearly 3%, to $85.23 a barrel. Early in the afternoon, both standards went up by more than $4 a barrel.
The rise in oil prices stopped last week’s downward trend, which was the biggest weekly drop since March. Brent fell about 11% and WTI fell more than 8%, as worries about global demand grew due to a worsening financial outlook.
According to Tamas Varga of oil buyer PVM, “any rise in tension in the Middle East usually leads to an increase in oil prices, and this time is no different.” This does not change the supply-demand balance.
On Saturday, Hamas began the biggest military attack on Israel in decades. This caused Israel to fire a wave of air strikes on Gaza in response.
The recent violence could stop U.S. efforts to help Saudi Arabia and Israel get along again. Under this plan, the kingdom would normalize relations with Israel in exchange for a security deal between Washington and Riyadh.
According to reports, Saudi officials conveyed to the White House on Friday their willingness to increase production in the upcoming year as a component of the suggested agreement with Israel. An agreement has been reached between Riyadh and Moscow to implement a collective reduction of 1.3 million barrels per day (bpd) until the conclusion of 2023.
The question is how long this rise in oil prices will last. Analysts at Citi said. “Timing is everything, and the attacks almost certainly postpone any Saudi-Israeli rapprochement, along with any high probability expectation of Saudi Arabia reducing or eliminating its extra 1 million bpd cut if prices resume their recent fall.”
There are also doubts about whether Iran will be involved in the fight. “Up to 3% of the world’s oil supply could be at risk if the conflict spreads to Iran.” “About 20% of the world’s oil supply could be held hostage,” energy expert Saul Kavonic told Reuters if there is a bigger battle that makes it hard to pass through the Strait of Hormuz.
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