Israel-Hamas War Is A Wait-And-Watch Situation For Oil Markets, Says Vandana Hari
The danger of the conflict is that it sits at the doorstep of a major oil and gas producing region, Hari said.
As conflict escalated between Israel and Hamas, Brent crude and West Texas Intermediate prices rose over 5% in early trade on Monday.
"What we saw in the Asian markets was a knee-jerk reaction, which is typical in the event of any flare-up in the Middle East," said Vandana Hari, chief operating officer of Vandana Insights Pte. The Israel-Hamas conflict has not yet impacted any oil or gas supply in the region, she said.
"It's a wait-and-watch situation in all countries, whether indirectly or directly affected by the situation," Hari said. However, the danger of the conflict is that it sits at the doorstep of a major oil and gas-producing region, she told BQ Prime.
"Another major danger is that these conflicts are never just bilateral, as there are vested interests of supporting countries from both sides." If the conflict escalates, it could carry a risk to the oil and gas supply, as one-third of the world's oil comes from the Middle East, Hari said.
What Is The Market Factoring In?
Hari highlighted the enduring and dynamic political and religious tensions in the Middle East, emphasising that historical conflicts between Iran and Arab nations have also affected oil markets.
The market is currently factoring in the potential Iranian support for the recent attack by Hamas, she said. "But after the first knee-jerk reaction, crude has pulled back a little bit, and if the situation remains limited to Israel and Palestine, there won't be an impact on oil."
Crude prices surged ten trading sessions ago but dropped significantly last week due to concerns about rising bond yields and the U.S. Federal Reserve's stance on interest rates, Hari said. While factors like OPEC's production cut and concerns about demand due to high oil prices will return, the oil market will remain influenced by conflict-related factors in the near term, according to her.
The Geopolitical Aspect
Iran's oil production has reached a five-year high at 3.2 million barrels per day. Any Iranian involvement could jeopardise crude production and supply, she said. However, it's challenging for the oil market to confidently determine if the conflict will affect Iran, Hari said.
Hari also highlighted the volatile geopolitical dynamics at play, particularly between Iran and the U.S. While relations have shown signs of improvement, they remain unpredictable and could "go south at any time", according to her.
There have been suggestions that the U.S. might impose stricter sanctions on Iran in response to their suspected involvement in the Hamas attack. However, many aspects remain uncertain, as the U.S. may be cautious about taking any action that could escalate the conflict and corner Iran, Hari said.
India is an important voice on the global stage, she said. The Middle East pays close attention to price-sensitive economies like India, recognising their status as significant and expanding markets for Middle Eastern crude exports. Therefore, these economies cannot be ignored, she said.
Hari doesn't expect the OPEC to make any changes to its current voluntary production cuts unless they have a good reason to do so.
