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Analysts say the Hamas-Israel conflict is unlikely to put oil flows at an immediate threat but possible escalation and involvement of US and Iran could send crude prices soaring.

The escalating tensions between Israel and Hamas triggered an immediate surge in crude oil prices, with Brent crude hitting nearly $88 per barrel on Monday. Analysts believe the ongoing conflict is not likely to pose an imminent threat to the oil supply. However, a potential involvement of Iran and the US could lead to a proxy war and propel oil prices to new heights.   

Oil Prices Rebound Amid Potential Supply Disruptions

Crude oil prices soared roughly 4% higher on Sunday as the clash between Israel and Hamas escalated, sparking potential concerns over oil production and transportation in the Middle East.

The global standard Brent crude rose 3.97% to $87.94 a barrel, while the West Texas Intermediate (WTI) climbed 4.13% to $86.21. Despite the surge, prices are still below levels of over $90 a barrel reached last week.

Oil prices have decreased this month, losing around $10 per barrel before Hamas attacked Israel. The Federal Reserve’s ‘higher for longer’ interest rates message and slowing growth weighed on the oil demand outlook, offsetting the previous rally that drove crude oil prices to $100 per barrel. 

However, the latest escalation in the Middle East will likely lead to volatility in the oil market as investors focus on possible supply disruptions. 

Hamas-Israel Clash Unlikely to Disrupt Oil Flows, But a Potential Proxy War Could

The recent attacks are unlikely to put oil flows at immediate risk, given that neither Palestine nor Israel are major players in that industry. Nevertheless, there’s a chance that the conflict could result in a catastrophic proxy war and involve more countries, such as the US and Iran, both of which are key oil market drivers.

“How Saudi Arabia, Iran, and the U.S. get drawn into this will be key. Geopolitical risk doesn’t tend to linger long in markets but there are many second order impacts that could come through in the weeks, months and years ahead from this weekend’s developments.”

– Deutsche Bank analyst Jim Reid said on Monday. 

Tehran is being blamed by US officials that it is involved in the Hamas attacks, and any retaliation against Iran could lead to the closure of the Strait of Hormuz – the only sea passage from the Persian Gulf to the open ocean. Iran previously threatened to close the strait. 

Additionally, if the reported Iran involvement in the war triggers a response from Israel or the US, a sharp surge in crude oil prices would be likely on the perceived risk of disruption. 

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