Oil prices experienced a significant surge on Wednesday in the wake of a call from Iran for an embargo on Israel, a response to a deadly explosion at a Gaza hospital that has heightened tensions in the Middle East. Brent futures witnessed a sharp increase, rising by as much as 3.5% to trade near $93 per barrel, before slightly retracting some of those gains.
Iran’s Foreign Minister, Javad Zarif, issued a fervent call for a complete and immediate boycott of Israel, encompassing an oil embargo, by Muslim nations. This development has exacerbated concerns that the longstanding tensions between Israel and Hamas may intensify, potentially drawing in other regional players, notably Iran, a crucial crude oil supplier.
Authorities in Gaza assert that the hospital blast was the result of an Israeli airstrike, while Israel has attributed the incident to a missile failure by Palestinian Islamic Jihad. Oil traders are closely monitoring the situation for any signs that the conflict could lead to disruptions in supply. There is a surplus of spare capacity worldwide that could be mobilized, if necessary, to mitigate any surge in fuel prices. Moreover, traders are cognizant of the potential impact of a global economic slowdown on demand.
Jorge Leon, an analyst at consultant 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 global oil market has evolved into a highly interconnected network, providing Israel with numerous alternative suppliers in the event of an embargo. Major contributors include Kazakhstan and Azerbaijan, with West African producers also playing a significant role.
Today’s data releases from China further supported crude prices, revealing better-than-expected economic growth that spurred an increase in demand. The nation consumed a record 15.54 million barrels per day of crude in September.
In a bid to prevent further escalation of the conflict, US President Joe Biden is presently in Israel as part of his diplomatic efforts. This unexpected visit came in response to the hospital blast that claimed hundreds of lives, prompting Biden to alter the itinerary of his regional tour.
The call by Iran for an embargo on Israel following the Gaza hospital incident has undeniably played a pivotal role in the recent surge of oil prices, underlining the interconnectedness of geopolitical events and global energy markets.Traders are vigilantly monitoring the situation for any signs of further escalation.
Source: Bloomberg
