Oil prices remain steady despite Israel's intensified conflict with Hamas A potential surge looms
Despite Israel's escalation against Hamas, global oil prices remain unaffected, defying concerns of a potential regional conflict spillover Stability prevails as markets show resilience in the face of ongoing conflicts
Oil prices declined once again on Monday, as worries regarding the state of the global economy surpassed concerns over potential regional conflict arising from Israel's recent military expansion in Gaza. The global oil benchmark, Brent crude, experienced a 1.1% decrease, reaching $89 per barrel. Meanwhile, the US benchmark, West Texas Intermediate (WTI) crude, saw a drop of 1.3%, trading at $84 per barrel as of 7:51 a.m. ET. In the previous week, Brent crude fell by 1.8% and WTI by 3.6%.
In a note on Monday, Susannah Streeter, the head of money and markets at Hargreaves Lansdown, acknowledged that the ground offensive in Gaza was anticipated, despite the ongoing risks of regional escalation. Streeter highlighted that while supply concerns continue to support oil prices, worries about a potential decline in global growth and weaker demand have led to a decrease in oil prices.
Concerns surrounding global economic growth were highlighted on Monday as Germany, Europe's largest economy, reported a contraction in its gross domestic product during the third quarter due to reduced consumer spending.
On Monday, the World Bank issued a warning stating that the escalation of conflict in Gaza could have severe repercussions on global commodity markets, particularly oil markets, potentially leading to unpredictable circumstances. The report outlined three potential scenarios that could result in a significant increase in oil prices.
"Policymakers must remain vigilant," stated Indermit Gill, the chief economist of the lenders. "In the event of an escalation in the conflict, the global economy would experience a simultaneous energy shock, not only from the war in Ukraine but also from the Middle East."
Israeli armoured personnel carriers (APCs) maneuver at an area along the border with Gaza, southern Israel, 15 October 2023.
Abir Sultan/EPA-EFE/Shutterstock
Oil prices are experiencing fluctuations due to increasing concerns over tensions in the Middle East. According to the recently published Commodity Markets Outlook by the World Bank, it predicts that global oil prices will reach an average of $90 per barrel in the fourth quarter. However, it also expects a decline in prices to an average of $81 per barrel next year as a result of a slowdown in global economic growth.
In the event that the conflict escalates and causes a disruption in oil supplies, there is the potential for a significant increase in prices. The worst-case scenario, according to the World Bank, could result in a 75% price spike to $157 per barrel, comparable to the disruption caused by the Arab oil embargo in 1973.
Additionally, the bank predicts that a smaller disruption, similar to the impact of the Libyan civil war in 2011, could lead to oil prices of $103 per barrel. A medium-level disruption, comparable to the fallout from the Iraq war in 2003, may push prices up to $121 per barrel.
Since Hamas attacked Israel on October 7, killing primarily civilians and resulting in more than 1,400 casualties, Brent prices have witnessed a rise of 5.7%. The situation escalated on Saturday as Israeli troops heightened their ground operation in Gaza, following weeks of airstrikes on the Hamas-controlled region. Israeli Prime Minister Benjamin Netanyahu stated on Sunday that the nation was ready to endure a "long and challenging war."
Israel has deployed additional ground forces into Gaza, as stated by Israeli army spokesman Daniel Hagari on Monday, emphasizing that their operations will increase in intensity. On Sunday, US national security adviser Jake Sullivan expressed concerns about the possibility of the conflict escalating and affecting other areas in the region during an interview with CBS.
Iranian President Ebrahim Raisi declared on Sunday that Israel's offensive had exceeded the boundaries of acceptability and could potentially compel various stakeholders to intervene. Iran, a prominent actor in the region, maintains alliances with both Hamas and Hezbollah, a Lebanese militant organization that has engaged in retaliatory acts of aggression against Israel lately.
Iran has categorically refuted any participation in the Hamas assault on Israel that took place on October 7. Early indications from US intelligence indicate that Tehran was taken aback by the attacks.
Rob North contributed to this article.
