The stability of the Middle East is being threatened as tensions between Israel and armed Palestinian groups escalate, resulting in concerns over potential disruptions to global oil output. This has led to a significant rise in global oil prices, with Brent futures increasing by 3.7% to $87.77 per barrel and US West Texas Intermediate crude trading above $86 per barrel, up nearly 4%. Both benchmarks had initially spiked by more than 5% earlier in the session.
This recent surge in oil prices has reversed the largest weekly decline since March, during which Brent fell about 11% and WTI retreated more than 8% due to concerns about global demand. The current increase in prices comes as armed Palestinian groups launched a surprise attack on multiple locations along the Gaza border on Saturday, prompting a counteroffensive from Israel. Israeli officials estimate that over 700 people have been killed in the Hamas assault, with more than 2,200 wounded and 100 kidnapped, including citizens of European countries and the US. Palestinian officials report that over 400 people have been killed and around 2,200 wounded in Gaza following Israel’s retaliatory air strikes.
While Israel is not a major global oil producer or exporter, the escalating hostilities in the region could generate wider uncertainty throughout the Middle East. Moreover, there is a potential for tougher sanctions on Iranian oil exports if Tehran is found to be supporting Hamas.
Furthermore, the recent developments threaten to derail Washington’s efforts to broker a deal between Saudi Arabia and Israel, which would impact the kingdom’s willingness to increase its oil production. According to reports, Saudi officials had expressed their willingness to raise output in 2024 as part of the proposed Israel deal. Currently, Saudi Arabia and Russia have agreed to a combined voluntary cut of 1.3 million barrels per day until the end of the year.
These developments highlight the interconnectedness of geopolitical tensions and global oil markets. Any disturbances or escalations in the Middle East have the potential to significantly impact oil prices and supply. It remains to be seen how the situation will unfold and whether there will be any further implications for global oil markets.
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