As per reports, the ongoing conflict in the Middle East has caused a sharp rise in global oil prices, reminiscent of the price jumps during Israel's 2006 invasion of Lebanon. Back then, oil prices surged nearly 10 percent, reaching 80 dollars per barrel. Now, in the face of even more severe fighting, the energy market has reacted similarly, with prices spiking by 10 percent, though the threat to oil supply is far more tangible today.
Reportedly, recent developments, including Iranian ballistic missile strikes on Tel Aviv and escalating tensions between Israel, Hezbollah, and Hamas, have intensified concerns about regional stability. Unlike in 2006, when the possibility of a disruption to oil supply was speculative, today's situation has heightened fears of actual supply threats. U.S. President Joe Biden acknowledged this last week, cautioning Israel against targeting oil fields in the region.
Historically, the energy market has reacted to worst-case scenarios, influenced by memories of major disruptions like the 1970s oil crisis and the Iran-Iraq war of the 1980s. However, the current generation of oil traders lacks firsthand experience of prolonged Middle Eastern oil shocks, with most disruptions over the past two decades being short-lived or driven by consumer sanctions against countries like Iran, Venezuela, and Russia.
If the market were to price in a full-scale oil supply shock, experts warn that it would surpass the current 10 percent increase. A worst-case scenario could involve Israel striking Iran’s Kharg Island oil export terminal, followed by Iranian retaliation against oil fields in Saudi Arabia, Kuwait, and the UAE, potentially leading to a massive regional conflict. Such a disruption would likely close the Strait of Hormuz, a vital shipping lane for Middle Eastern oil, and could trigger a far more severe impact on global oil prices.
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