On Wednesday, oil prices saw a sharp spike following a call for an embargo on Israel by Iran in response to a deadly explosion at a Gaza hospital, escalating tensions in the Middle East. Brent futures saw a substantial uptick of 3.5%, nearing $93 per barrel, before moderating some of those gains.
Iran’s Foreign Minister, Javad Zarif, issued a fervent call for a comprehensive and immediate boycott of Israel, encompassing an oil embargo, to be observed by Muslim nations. This development has stoked concerns that the ongoing hostilities between Israel and Hamas may intensify, potentially drawing in other regional actors, including Iran, a pivotal crude oil supplier.
While Gaza authorities attribute the hospital explosion to an Israeli airstrike, Israel contends that Palestinian Islamic Jihad is responsible for the missile malfunction. Oil traders are closely monitoring the situation for any signs of disruptions in the supply chain. The global oil market currently possesses an ample reserve capacity that can be mobilized if necessary to mitigate any spikes in fuel prices. Additionally, traders are vigilant about the potential impact of a global economic slowdown on demand.
Jorge Leon, an analyst at consultancy firm Rystad Energy, noted, “There is some geopolitical premium that is kicking into the market. However, we have a lot of spare capacity in the market right now, which is acting as a limiting factor on the upside for prices.”
The globalized nature of the oil market provides Israel with a range of alternative suppliers in the event of an embargo. Major contributors include Kazakhstan and Azerbaijan, along with West African producers. Furthermore, positive economic growth data from China released today has buoyed crude prices, as it revealed a demand surge with a record consumption of 15.54 million barrels per day in September.
In an unexpected turn of events, U.S. President Joe Biden is presently in Israel, part of his mission to prevent further escalation of the conflict, following the hospital explosion that claimed hundreds of lives. This incident prompted an impromptu visit from President Biden as he commenced his tour of the region.
In conclusion, the call for an embargo on Israel by Iran, triggered by the Gaza hospital incident, has significantly impacted oil prices and further exacerbated the volatility in the region. Traders remain on high alert for any further escalation in the region.
Source: Bloomberg
