In the wake of increased tensions between Israel and Hamas, early Monday trading saw Brent crude and West Texas Intermediate prices surge by more than 5%. Vandana Hari, the Chief Operating Officer of Vandana Insights Pte., characterized this as a typical knee-jerk reaction often seen in Asian markets during Middle East flare-ups.
Importantly, despite the conflict, there hasn’t been any immediate impact on oil or gas supplies in the region, according to Hari. She stressed that it’s a situation of “wait and watch” for all countries affected, either directly or indirectly.
One of the significant concerns is the proximity of this conflict to a major oil and gas-producing region. Hari pointed out that these conflicts tend not to remain strictly bilateral, as they involve the vested interests of supporting countries on both sides. Given that one-third of the world’s oil comes from the Middle East, an escalation could indeed pose a risk to oil and gas supplies.
Hari also highlighted the longstanding and complex political and religious tensions in the Middle East, noting that historical conflicts between Iran and Arab nations have previously impacted oil markets. The market is currently factoring in the possibility of Iranian support for Hamas in this recent attack. However, she noted that after the initial knee-jerk reaction, crude oil prices have somewhat stabilized. If the conflict remains confined to Israel and Palestine, it may not have a lasting impact on oil prices.
Hari recalled that crude prices experienced a significant surge ten trading sessions ago but subsequently dropped due to concerns about rising bond yields and the U.S. Federal Reserve’s stance on interest rates. While other factors like OPEC’s production cuts and concerns about demand due to high oil prices will continue to play a role, conflict-related factors are expected to exert influence on the oil market in the near term.