An attack on Israel could raise oil prices. It's 1973 all over again
The state of war in Israel could turn into another global fuel crisis. However, it will not resemble the crisis from 50 years ago. If the United States imposes additional fuel sanctions on Iran, which may be behind Hamas' attacks in Israel, Russia will step in.
According to Bloomberg energy and commodities expert Javier Blas, the current crisis caused by Hamas attacks in Israel has several characteristics in common with October 1973, when the global fuel crisis occurred.
It's about the convergence of dates. We are observing the exact 50th anniversary of the global energy crisis. Half a century ago, an unexpected attack on Israel also led to a rise in oil prices worldwide. But the similarities to both situations end there. The story we are dealing with now is different, as the world itself has also changed.
The key reaction is from Israel
As Blas emphasizes, the situation in the fuel markets is "fluid", much depends on how Israel will respond to the attacks by Hamas and Palestinians associated with this group.
As the agency emphasizes, not the entire Arab world is unanimous on the issue of attacking Israel. Such countries as: Egypt, Jordan, Syria, Saudi Arabia, and a large part of the Arab world are observing the ongoing events in Israel from the sidelines, without getting directly involved.
The fuel market is also different than it was half a century ago. At that time, the demand for oil was rapidly increasing, and the world was not able to increase production capacity.
Currently, consumption growth is not high and it is continually weakening due to, among other things, the increasing market share of electric cars. In addition, Saudi Arabia and the United Arab Emirates have significant spare production capacities, which can be used to lower prices - if they choose to do so.
Importantly, OPEC countries are not trying to exploit the tense situation in Israel to significantly raise oil prices. Increases are no more than a few dollars per barrel. Even though Saudi Arabia would be - according to Blas - happy if oil prices rose by 10- 20 percent (or slightly over 100 dollars per barrel from the current 85 dollars), the world is no longer threatened by a 70 -100 percent government increases like in 1973. Although - as the analyst admits - the American embargo on Iranian oil supplies is also a factor in shaping prices.
Key to this story, however, is how Israel will respond to the attack by Hamas. If it is determined that their actions are a "directive coming from Iran", we are facing a crisis that will also encompass 2024. At that time, global oil prices might rise.
Turning a blind eye to the embargo
Bloomberg reminds us that in 2019, Iran showed through Yemeni representatives that it is capable of destroying a significant part of Saudi Arabia's oil production capacities. Now it may do the same as retaliation. That is, if it finds itself under attack from Israel or the United States.
In the event that Israel does not take immediate action against Iran, a Hamas attack will still have an impact on the production of Iranian oil. Since the end of 2022, Washington has turned a blind eye to the rising export of Iranian oil, which bypassed American sanctions.
The priority in Washington's policy was an informal détente with Tehran. As a result, Iran's oil production increased by almost 700,000 barrels per day this year, which is the second largest source of incremental supplies to the United States in 2023.
After the attack on Israel, the White House will most likely change its attitude and begin enforcing sanctions imposed on Tehran. This, in turn, could raise world oil prices to $100 per barrel, or even higher - estimates the agency.
Who will benefit from the attack?
According to the American press agency, the Kremlin authorities will benefit the most from the Middle Eastern crisis. If Washington imposes additional sanctions on Iran, it may create room for deliveries from Russia, which will allow Putin to not only gain a larger market share, but also achieve higher prices.
One of the reasons the White House was turning a blind eye to the export of Iranian oil was precisely because it was hurting Russia.
Venezuela could also benefit from the situation, as the White House has eased sanctions on oil supplies to reduce market pressure on this commodity.
The crisis in Israel in turn casts a huge shadow on the prepared Saudi-Israeli agreement. Saudi ruler Mohammed bin Salman may now have a serious problem in his country with obtaining acceptance for the agreement planned for next year. And this in turn excludes the possibility of Saudi Arabia pumping more oil.
The second victim of the Hamas war with Israel is the Saudi-Iranian rapprochement, which in itself was an important element for oil markets.
And finally, a key difference from 1973 is that Washington can use its strategic oil reserves to limit speculation on fuel prices worldwide.
If oil prices rise due to tensions in the Middle East, the White House will definitely take advantage of this solution, even though these reserves are at their lowest level in 40 years.
