Conflict in the Middle East often means turbulence on energy markets. Several countries there are central to global oil and gas production.
The Hamas terror attacks in Israel have thrust the entire region into a hugely uncertain new era, political and otherwise. Energy market analysts are trying to make sense of what it may mean for global oil prices, which have been on a dramatic trajectory since 2020 due to the COVID-19 pandemic and the war in Ukraine.
As the world reacted to events in Israel at the weekend, crude oil prices jumped by nearly 5% to $89 (€83) a barrel on Monday. Uncertainty around potential supply issues caused the spike, but prices have since settled.
Israel produces next to no crude oil, but the potential for the conflict to widen in the Middle East has rattled experts.
"If it turns into a wider conflict, and that causes oil prices to go up, that does have an effect on the economies," Gita Gopinath, a senior official at the International Monetary Fund, told Bloomberg on Wednesday. "That's usually one of the channels through which we see that affecting global numbers."
US President Joe Biden has expressed concerns about the possibility of the conflict developing into a wider one.
The 1970s oil crises
The most dramatic oil crises of the 20th century followed conflict in the Middle East.
The Yom Kippur War of 1973 saw several Arab states attack Israel. The region's biggest oil producers, led by Saudi Arabia, then placed an oil embargo on nations that supported Israel, such as the United States, the United Kingdom, Canada, Japan and the Netherlands. That led to an oil crisis, which saw oil prices jump by more than 300%.
The second big oil crisis, in 1979, followed the Iranian revolution and the subsequent drop in oil production that took place in the country. That crisis saw global oil supply fall by around 4%, with prices for a barrel of crude oil more than doubling.
So far, there is little to suggest that what has happened in Israel will prompt anything like those crises. Prices are currently well below the figure of $97 a barrel that was reached in late September. Suggestions at that time that the price would soon breach $100 per barrel now look wide of the mark.
"Both WTI [West Texas Intermediate] and Brent retreated yesterday as concerns of a sudden and unexpected supply disruption have been swept aside for now," Tamas Varga, an analyst with PVM Oil Associates, told Reuters on October 11.
Brent crude and WTI are the two most traded grades of oil in the world. Brent crude's price is the benchmark for crude oil in Africa, Europe and the Middle East while WTI's price is the benchmark for North America.
The market, however, remains jittery given the potential for the conflict to worsen and spread. Magid Shenouda, deputy CEO of the Swiss commodities trader Mercuria, said on Wednesday that the company believe prices could breach $100 per barrel if the situation escalates.
The importance of Israeli gas
While Israel is not a major oil producer, it is a significant player in the global gas industry. In the wake of the Hamas attacks, the country shut down its Tamar natural gas field, around 25 kilometers (15 miles) off its southern coast.
Israel exports large volumes of gas to its neighbors Egypt and Jordan. The shutdown has led to concerns that global gas markets will become even tighter than they have been recently.
Egypt uses Israeli gas for some of its own LNG exports and the shutdown in Tamar may impact Egyptian LNG exports to Europe and elsewhere. However, Israel's largest gas field, Leviathan, continues to operate normally.
The uncertainty lies in how long the Tamar field will remain shut. Experts say that a prolonged shutdown would significantly impact Israeli export volumes to Egypt and Jordan, which would have knock-on effects for global LNG markets due to Egypt's role as an LNG exporter and the potential of import rises from elsewhere to Jordan.
The role of Iran in global oil
The crisis in Israel comes at a time when global energy markets are already tense, given the ongoing uncertainty caused by the war in Ukraine which — combined with the aftereffects of the pandemic and other factors — contributed to the wider global energy crisis of 2021-23.
Oil prices have come down from the $115 peak they hit in June 2022, despite production cuts from Saudi Arabia and its allies in the Organization of the Petroleum Exporting Countries (OPEC).
On October 4, a few days before the attacks in Israel, OPEC confirmed it would maintain production cuts until the end of 2023. But even after that news, prices continued on the downward trend they have been on since the end of September.
The production cuts by Saudi Arabia, other OPEC members and Russia mean there is considerable spare capacity in case oil supply is unexpectedly curtailed. However, there is still uncertainty over how Riyadh may respond, given recent tensions with the US.
The role of Iran is being closely watched, too. Although Iranian oil is sanctioned, it has flowed in significant volumes to China and elsewhere recently, easing oil markets in the wake of restrictions placed on Russian oil.
However, were Iran to become actively involved in the Israel conflict, pressure would come on the US and others to step up enforcement of sanctions on Iranian oil.
For now, the crisis has not extended to global energy markets but the risk of escalation has put the market on watch.
