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Crude oil prices soared to $89 a barrel on Monday on concerns that Hamas’ attack on Israel will heighten tensions in the Middle East and affect output in major oil producers.
Brent crude, the international oil benchmark, rose as much as 5.2% in early Asian trading before falling back to $87.69, up 3.7%.
Israel is not an oil producer, but there are concerns the conflict could spark wider uncertainty in the region and lead to tougher oil sanctions from Iran, whose foreign ministry backed Hamas’ actions as an act of self-defence.
The conflict could also complicate the Biden administration’s efforts to reach a deal with Saudi Arabia to normalize relations with Israel, which could also affect Saudi Arabia’s willingness to boost oil production.
Helima Croft, head of global commodities strategy at RBC Capital Markets, said: “The Israeli government has vowed an unprecedented response, and it is difficult to imagine how Saudi normalization negotiations can be carried out simultaneously with a fierce military counteroffensive.”
She added that the White House had taken a “soft approach” to imposing sanctions on Iranian oil production, but that approach would be “difficult” to sustain if Israel accuses Tehran of providing support to Hamas.
Pierre Andurand, a hedge fund manager specializing in energy trading, said that while there was little immediate threat to supply, the market could tighten.
“Over the past six months, we have seen a significant increase in Iranian supply due to poor sanctions enforcement,” he wrote on social media site Sanctions.”
Earlier, the Wall Street Journal published a report quoting senior Hamas members as saying that Iranian Islamic Revolutionary Guard Corps officers helped plan the militant group’s surprise attack on Israel. Iran’s Foreign Ministry supports Hamas’s actions, which it considers an act of self-defense.
U.S. officials have not confirmed any such link, and Secretary of State Antony Blinken told CNN on Sunday that “we have not seen evidence that Iran directed or supported this particular attack.”
“Our focus is on Iranian oil supplies and exports,” said Vivek Dar, mining and energy commodities analyst at Commonwealth Bank of Australia.
Dar said the U.S. confirmation that the Revolutionary Guards were involved in the attack would prompt stronger U.S. enforcement of existing sanctions on Iran, which have been weak this year due to concerns about high oil prices. This could push Brent crude prices above $100 a barrel, he added.
“If we do see the U.S. blaming Iran for this, we could see a reversal of the growth in the number of Iranian oil specialists this year,” Dar said. “The impact on the market would be around 0.5% to 1% of global supply. – It’s pretty big.”
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