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Oil Prices Spike Amid Middle East Conflict

Analysts anticipate potential supply issues if war breaks out with Iran over alleged involvement

The price of oil is surging after a deadly attack against Israel over the weekend reignited Middle East instability.

More than 2,000 rockets were fired from Gaza into Israel, while Hamas fighters used paragliders to enter Israel through the air to conduct ground assaults against military and civilian targets.

U.S. crude futures rose above $86 per barrel, at one point climbing 5.4 percent, according to Bloomberg.

“Recently crude has been prone to overreact to geopolitical events and price increases have been short-lived,” Rebecca Babin, a senior energy trader at CIBC Private Wealth, told the publication. “This situation may prove to be the exception.”

Reports are now indicating that Iran may have played a role in the attack, which could lead to a military response against Tehran, endangering the free passage of shipping vessels through the Strait of Hormuz, a vital route for much of the world’s crude.

Bloomberg reported multiple predictions about oil prices in the wake of the deadly attack:

  • Citigroup said the hostilities reduce expectations that Saudi Arabia will cut or eliminate its 1 million barrels-a-day of output curbs. Risks are also growing that Israel will attack Iran, analysts including Ed Morse said.
  • Morgan Stanley said that they thought the impact of the conflict would be limited. For now they don’t expect a spillover into other countries, meaning there will be a muted longer-term impact on crude prices.
  • Societe Generale SA said heightened geopolitical tensions could add $5-$10 risk premium to crude prices.
  • RBC Capital Markets analysts including Helima Croft said Israel will likely escalate a long-running shadow war against Iran, but Tehran’s response to such a move will be less clear.

“The conflict poses a risk of higher oil prices, and risks to both inflation and the growth outlook,” Karim Basta, chief economist at III Capital Management, told Reuters.

Pierre Andurand, a hedge fund manager and energy trader, said in a post on social media platform X that the conflict could “eventually have an impact on supply and prices.”

He added:

Now, over the last 6 months we have seen a very large increase in Iranian supply due to weak enforcement of sanctions. As Iran is also behind Hamas’ attacks on Israel, there is a good probability that the US administration will start enforcing those sanctions on Iranian oil exports more tightly. That would further tighten the oil market. Also the probability that this will lead to direct conflict with Iran is not zero.

“There’s also a risk of the conflict escalating regionally. If Iran is sucked into it, there could also be supply issues, though we’re not at that stage yet,” Eurasia Group’s director of energy, climate and resources Henning Gloystein told CNBC in an email.

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