The latest geopolitical conflict that has emerged with Hamas attacking Israel, could result in upward pressure on the oil price and inflation outlook. Driven by a risk to supply/output due to potential restrictions on Iranian exports.
While the conflict is currently contained in the immediate surrounding region, there is a risk that geopolitical tensions could escalate globally amid reports that Iran was involved in planning the attacks. For context, Iran is the 4th biggest producer in the Organization of the Petroleum Exporting Countries (OPEC), accounting for around 11% of production.
Interestingly, the oil price has recently been very weak, declining -8.8% just the other week. This was likely due to Russia announcing that it would lift its self-imposed partial ban on oil exports, coupled with weakening signs of global demand.
Source: TradingEconomics
How much oil is involved?
Both Israel and Palestine are not major oil players, but the conflict is occurring in an important wider oil producing region. Research data from the U.S. Energy Information Administration (EIA) shows that Israel “virtually has no crude oil and condensate production”, while Palestinian territories produce no oil.
What could the implications be for markets?
The news of conflict will likely deliver an initial knee-jerk reaction resulting in higher oil prices, but Saudi Arabia have noted that they will continue to support the market if required. While the overall impact on oil and financial markets is expected to be limited, this remains dependent on the conflict not escalating further.
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