In October 1973, the Arab League attacked Israel. In response, the region’s largest oil producer imposed an embargo on the United States, quadrupling crude prices and reshaping energy markets forever.
Fifty years later, Israel is once again at war due to an unprecedented attack by Hamas, but the impact on oil markets has been minimal.
Global benchmark Brent crude oil prices rose 4% on Monday, the first full day of trading since the conflict broke out, before easing slightly to $87.56 on Tuesday. It is still well below the $97 a barrel level reached in late September.
“I look at it and say: The market is nervous, but not scared,” said Dan Pickering, principal at Houston-based consulting firm Pickering Energy Partners. “Now it’s seen as a manageable crisis rather than a 1970s-type crisis.”
Israel does not produce large amounts of oil, so the fighting poses no immediate threat of supply disruptions.
Henning Gloenstein, director of energy, climate and resources at consultancy Eurasia Group, said Monday’s price rise reflected the market’s reassessment of risks in the region rather than supply concerns.
“The geopolitical situation in the Middle East has been easing over the past year or so… and this is reflected in the price of oil,” he said, referring to diplomatic and business deals between countries such as Israel and the United Arab Emirates. “Now these events over the weekend have really put the Middle East back on the minds of traders.”
The Yom Kippur War of 1973 also had little impact on the oil infrastructure. However, Saudi Arabia and its allies have used U.S. military support for Israel as an excuse to reduce Washington’s influence on the oil market by cutting production and curbing exports.
This time, Arab states will not attack Israel together, nor will traders expect Saudi Arabia or other producers to weaponize oil exports in support of Hamas.
The outlook for oil demand also looks very different. In the 1970s, crude oil consumption surged and producers had limited additional capacity. Today, while demand is at a record high of 103 million barrels per day, growth has slowed, in part because of efforts to transition away from fossil fuels.
Brent crude prices fell more than 10% last week after climbing to $100 a barrel in late September, a sign that traders believe the economic outlook does not justify such high prices.
The rally in recent months has not been driven by demand but has been supported by production cuts by Saudi Arabia, Russia and other members of the OPEC+ alliance. The cuts mean spare capacity has risen to the highest level in years, providing a buffer against disruption.
If supplies fall elsewhere in the world, Saudi Arabia alone could increase global production by nearly 3%, or about 3 million barrels per day.
But it is uncertain how Riyadh will respond if the Israeli conflict affects oil supplies. Ahead of Hamas’s attack, the United States and Saudi Arabia had been closing in on a broad diplomatic deal that would include civilian nuclear aid and new security guarantees for Riyadh in exchange for normalizing ties with Israel and increased oil flows. .
Helima Croft, head of commodities research at RBC Capital Markets and a former CIA analyst, said this “radical diplomatic reset” is now in a “precarious position” after the deadly weekend events ”.
If evidence emerges that Iran was directly involved in the attack, or that Tehran is actively involved in the crisis, Middle East oil supplies could take a hit.
In this case, Washington may seek to tighten sanctions on Iranian crude, which the United States has eased over the past year to ease pressure on oil markets, while increasing restrictions on Russian exports in response to the war in Ukraine .
Ship tracking data provided by Kpler showed that Iran exported 1.5 million barrels per day of crude oil to China in August, the highest level in a decade. But given that much of this cargo will be transported via Iranian or Dark Fleet vessels and facilitated by Iranian and Chinese banks, the United States’ ability to control such cargo is diminishing.
“The only way the Americans can really do that is to stop the ships, but that’s going to be tricky,” said Eurasia Group’s Glostein. “That could lead to an escalation of the U.S. conflict in the Middle East, which we think they will try to avoid. , unless there is a truly serious escalation between Iran and Israel.”
Israel’s natural gas production has already been affected after the Israeli Energy Ministry on Monday shut down operations at Chevron’s Tamar platform in the Mediterranean due to security concerns.
Israel began producing natural gas from offshore fields in 2004. The Tamar platform is the closest of the three offshore gas projects to Gaza. Production is underway further north at the Leviathan and Karish fields.
While Israel consumes most of its natural gas domestically, about a third is exported via pipelines to Jordan and Egypt. Tom Marzec-Manser, head of gas analysis, said any disruption to these supplies could have a knock-on effect on global gas markets, as it would increase demand for Jordanian LNG cargoes and reduce Egypt’s gas available for export as LNG. In ICIS.
European benchmark natural gas prices rose sharply on Tuesday, rising 25% from Friday’s closing price. “While this will not have a direct impact on supply in Europe, there is certainly a link,” he said.
Israeli-Palestinian conflict
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