Friday, May 24, 2024

Oil Prices Set to Skyrocket After Iran’s Attack on Israel

HomeWAROil Prices Set to Skyrocket After Iran's Attack on Israel

The global oil industry was sent into a tailspin over the weekend as tensions in the Middle East erupted in an unprecedented Iranian missile and drone barrage targeting Israel. With the region’s conflicts rapidly escalating, energy analysts warned of potential supply shocks that could roil markets and economies worldwide.

In a shocking move that crossed a new line after decades of hostility, the Islamic Revolutionary Guard Corps launched over 300 missiles and drones from Iranian soil towards the Jewish state on Saturday. The barrage constituted Iran’s first direct strike on its arch-nemesis Israel, which it refuses to recognize.

Israel’s U.S.-backed missile defenses managed to shoot down the vast majority of the projectiles, according to the Israeli Defense Forces. But some still managed to penetrate and strike sites like the Nevatim Air Base, causing what Israeli officials described as minor damage.

The audacious assault came just weeks after Iran blamed Israel for a strike on an Iranian military compound in Syria that killed a senior commander in the elite Quds Force, an overseas operations arm of the IRGC. Long-simmering Israeli-Iranian tensions, played out through proxy conflicts around the region, appeared to reach a new boiling point.

Oil trading floors felt the heat immediately. With concerns over potential supply disruptions in the world’s most critical energy chokepoint, Brent crude futures rocketed over $92 a barrel on Friday, striking six-month highs.

“Prices will definitely spike higher once markets reopen,” said Marcus Newton, an energy analyst at Berenberg, in a note underscoring the upward pressures now facing the oil benchmarks.

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Newton pointed to escalating risks around the Strait of Hormuz, the narrow Persian Gulf shipping lane through which roughly 20% of global petroleum liquids production transits. Threats of Iranian forces impeding or blocking that vital artery could quickly translate into real-world shortages.

Ominous signs emerged over the weekend of Tehran potentially making preparations to exercise that economic stranglehold, which would have devastating impacts on energy costs and inflation worldwide.

Iranian state media reported the IRGC navy had seized a Portuguese-flagged tanker, alleging it had entered Iranian territorial waters, though the circumstances remained murky. And a top Iranian naval commander stoked fears by stating the Strait’s closure could happen if “deemed necessary by the authorities.”

The Biden administration, desperate to avoid scenarios causing debilitating price shocks ahead of the 2024 election cycle, immediately scrambled to coordinate a unified response among allies that could deter further escalation while keeping oil flowing.

Western leaders convened an emergency G7 meeting condemning the “unprecedented and audacious” Iranian strikes in statements sharply rebuking the regime. A senior U.S. official revealed potential new sanctions on Tehran were among actions discussed.

But the White House finds itself stuck between conflicting objectives. Biden officials are determined to uphold security commitments to Israel while tamping down risks of a region-wide conflagration.

However, Iranian oil exports have soared under Biden after being decimated during the Trump administration’s “maximum pressure” campaign of harsh economic sanctions. The current administration denies actively allowing Iran’s resurgent crude sales, but the reality is such sales help keep a lid on energy costs – a political imperative in America.

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Hence the desire in Washington for swiftly restoring deterrence through threats of punishing retaliation, while simultaneously seeking off-ramps to defuse an open-ended crisis that could massively disrupt global supply chains America depends upon.

In Israel, the government of Benjamin Netanyahu put its military forces on highest alert for the second time this month in anticipation of the Iranian reprisals over the deadly Syria strike.

Speaking at an emergency U.N. Security Council session, Israeli Ambassador Gilad Erdan warned of the “unrestrained fanaticism of the Iranian regime” while stressing Israel’s determination to exercise its self-defense rights.

“Iran is a malign, rogue state that proved once again it will go to extraordinary lengths to inflict harm on Israel,” Erdan told the council while showcasing debris from the Iranian munitions. “The Jewish state has an inviolable right to defend its territory and people from such existential threats.”

Yet even as the two arch-foes traded blistering rhetorical barbs and provocative actions, some analysts saw a potential pause in the latest escalation cycle once rough retaliation had been exchanged.

“Iran may consider this a measured, proportional response to the Syria attack, unless Israel decides to escalate further with its own retaliation,” said Brian Jacobsen, chief economist at Annex Wealth Management.

Jacobsen noted how after the U.S. killing of Qasem Soleimani, the powerful former Quds Force commander, Iran responded with its own deadly strike on American forces in Iraq – but then halted further escalation, deeming its retaliation commensurate.

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“If both sides choose to treat the latest exchange as settling the score from previous incidents, we may see de-escalation and a relief rally for equities and the oil market,” he told investors.

However, such scenarios remain tenuous at best given the hair-trigger tensions and historic enmity defining the Iranian-Israeli conflict. Decades of unresolved grievances and the potential for miscalculation create a tinderbox where any spark could ignite a wider conflagration, analysts warn.

The Middle East has already endured years of upheaval and bloodshed, from Syria’s civil war to Yemen’s humanitarian catastrophe. Conflicts emanating from the fallout of Russia’s Ukraine invasion have also destabilized fragile nations stretching from Lebanon to Sudan.

Should Iran and Israel opt to continue their escalating cycles of tit-for-tat retaliation, some fear the region could be plunged into an all-out war unlike anything seen in generations – with potentially catastrophic global ramifications.

“While temporary supply disruptions may fuel damaging commodity price spikes, the true nightmare scenario is a protracted Iranian-Israeli conflict that could prove disastrous for worldwide energy markets and wreak havoc across an already unstable Middle East,” said Helima Croft, head of commodity strategy at RBC Capital Markets.

As the world’s chronically turbulent tinderbox threatens to ignite yet again, the international community finds itself struggling to determine whether these bitter foes are nearing an explosive climax or just striking the latest match in an endless cycle of violence that perpetually risks burning everyone.



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Mezhar Alee
Mezhar Alee
Mezhar Alee is a prolific author who provides commentary and analysis on business, finance, politics, sports, and current events on his website Opportuneist. With over a decade of experience in journalism and blogging, Mezhar aims to deliver well-researched insights and thought-provoking perspectives on important local and global issues in society.

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