Fifty years (almost to the day) passed after the Yom Kippur War and the OAPEC oil embargo, Hamas attacked Israel, killed hundreds of Israelis, and took hostages. Israel has responded vigorously, and a significant conflict is underway in Gaza and surrounding territory.
Not surprisingly, everyone who has an opinion about oil prices suggests the conflict could destabilize the Gulf and potentially disrupt oil flows. We believe that is still a low probability. The last thing the Biden Administration wants is an oil disruption approaching an election year. U.S. support for Israel will likely encourage containment of the conflict.
Moreover, Israel probably wants to avoid simultaneous conflict with Hezbollah, although we acknowledge Israeli decisions are certainly a wildcard. While the effort by the U.S. to negotiate an Israeli-Saudi rapprochement is being headlined as a cause of this likely Iran-backed attack by Hamas, there are more significant issues between Israel and Hamas.
The resolution of this conflict is anticipated to take time. Paper traders have added an uncertainty premium to oil prices, but the likelihood of a physical supply disruption seems mitigated. Ongoing developments will be crucial in determining the overall impact on regional stability and oil markets.