The current situation in Israel and Gaza has led to concerns that production in the Middle East could be disrupted, which has caused an increase in the price of oil.
The price of a barrel of Brent crude, which is used as the international benchmark, increased by $2.50 to reach $87.05, while prices in the US also increased.
Although Israel and the Palestinian territories are not oil producers, the Middle East region is responsible for roughly a third of the world’s supply of oil.
The attack that Hamas carried out against Israel was the most significant escalation in the conflict in recent decades.
The Western nations issued strong condemnations of the attacks. According to a statement made to the BBC by a representative for the Palestinian militant group Hamas, Iran, which is one of the greatest oil producers in the world, has provided Hamas with direct support for the move.
According to Reuters, Iran denied involvement in the attack during a meeting of the United Nations Security Council held in New York on Sunday. On the other hand, Iranian President Ebrahim Raisi has voiced his approval of the strike.
According to energy researcher Saul Kavonic, who spoke with the BBC, the increase in the price of oil around the world “can be attributed to the prospect of a wider conflagration that could spread to nearby major oil-producing nations such as Iran and Saudi Arabia.”
The price of a barrel of West Texas Intermediate crude, which is used as the benchmark for oil prices in the United States, increased by $2.70 overnight and was $85.50 on Monday morning.
“If the conflict envelops Iran, which has been accused of supporting the Hamas attacks, up to 3% of global oil supply is at risk,” according to Mr. Kavonic.
In spite of the sanctions imposed by the United States, Caroline Bain, the head commodities economist at Capital Economics, stated on the BBC’s Today program that Iran has been growing its oil production during the course of this year.
“The US seems to have turned a blind eye to a steady increase in Iranian production, that… is going to be more difficult for the US to ignore going forward from here,” added the official.
Ms. Bain stated that Capital Economics anticipated that demand for oil will exceed supply in the last three months of the year, and that “that should support higher prices.”
This is the Hormuz Strait.
According to Mr. Kavonic, approximately one fifth of the global supply would be “held hostage” in the event that transit through the Strait of Hormuz, an essential oil trading route, was disrupted.
The primary oil exporting nations in the Gulf region, whose economy are centered upon the extraction of oil and gas, place a significant amount of importance on the Strait of Hormuz.
According to James Cheo of HSBC bank, investments in US Treasury bonds and the dollar, which investors generally buy during times of crisis, may also be driven by uncertainty over how events could unfold in the following days. These are investments that investors traditionally acquire during times of crisis.
The Israeli central bank announced on Monday that it would sell up to $30 billion worth of foreign currency in an effort to calm markets and strengthen the shekel, the country’s own currency, which has experienced a significant decline in value.
“At this point, there is some trepidation,” the speaker said. According to Mr. Cheo, “[Investors] want to see a little more clarity, particularly on economic data and on developments associated with developments associated with geopolitical uncertainty.”
Oil prices skyrocketed after Russia invaded Ukraine in February 2022, reaching more than $120 a barrel in June of the previous year. This event took place in 2022.
They rebounded to a level just above $70 per barrel in May of this year, but have been steadily climbing ever since as a result of producers’ efforts to limit output in an effort to prop up the market.
The major oil producing nation of Saudi Arabia has announced that it will reduce its output by one million barrels per day beginning in the month of July.
Other oil-producing countries who are members of Opec+ have also agreed to maintain output reductions in an effort to prop up falling oil prices.
The decisions made by Opec+, which controls almost 40% of the world’s crude oil supply, have the potential to have a significant effect on the price of oil.