Oil prices surged by more than 4% as the Israel-Hamas conflict extended into its third day, adding to market volatility and drawing investor focus to the wider Middle East, including Iran's oil exports.
The conflict between Israel and Palestinian militant group Hamas escalated on Saturday when Hamas initiated a multi-pronged attack on Israel. Oil prices jumped in response — the global benchmark Brent gained 4.53% on Monday, to trade at $88.41 per barrel, while US West Texas Intermediate futures rose 4.69% to $88.67 per barrel.
Despite the rise in oil prices, analysts suggest the impact on the oil market is likely to be short-lived unless it leads to a sustained disruption in oil supply or transport.
"For this conflict to have a lasting and meaningful impact on oil markets, there must be a sustained reduction in oil supply or transport," said Vivek Dhar, director of mining and energy commodities research at the Commonwealth Bank.
Although neither Israel nor the Palestinian territories are major players in the oil industry, the conflict is close to a significant oil-producing region, heightening concerns over stability. Iran, whose oil exports have been previously restricted by US sanctions, has also come into focus.
"If Western countries officially link Iranian intelligence to the Hamas attack, then Iran’s oil supply and exports face imminent downside risks," said Dhar.
There is concern that the conflict might escalate regionally, affecting other players like Lebanese militant group Hezbollah. Lebanese militant group Hezbollah said it launched attacks on three sites at the intersection of the Lebanese-Syrian border and the Israeli-occupied Golan Heights.
Yet US Secretary of State Antony Blinken highlighted the "limited firing" between Hezbollah and Israel, but noted, “as of now, that’s quiet, but it’s something we’re watching very carefully”. Josh Young of energy investment firm Bison Interests said there could be “a pretty dramatic effect on the oil market” should the US enforce sanctions on Iranian exports.
While the immediate oil price reaction to the Israel-Hamas conflict is viewed as temporary by market analysts, the geopolitical landscape poses additional questions about the stability of oil supplies, especially with Iran and other regional actors in the picture.