Markets wobble, oil surges on Hamas attack

Iran’s oil supply

Commonwealth Bank’s commodities strategist, Vivek Dhar, said the heightened conflict in the region hadn’t yet directly put in danger any major source of oil supply, but pointed to the geopolitical implications of Iran’s alleged involvement as a source of concern.

“Indirectly though, oil supply and exports from Iran loom as the market’s immediate concern,” he wrote in a note.

Mr Dhar added that if western countries officially linked Iranian intelligence to the Hamas attack, as had been alleged by Israeli intelligence, then Iran’s oil supply and exports faced “imminent downside risk”.

That risk, he said, was further heightened by the deployment of US aircraft carriers closer to Israel as a show of support over the weekend.

“The move highlights US concerns that Iran may become more actively involved in this conflict [...] Iran’s oil exports have surged this year as the US has overlooked sanctions to ease tensions with Iran unofficially,” he said

Mr Dhar warned that any potential US sanctions on the Iran would place 1 per cent of global oil supply at risk.

“Given the tightness already facing physical oil markets in Q4 2023, an immediate reduction in Iran’s oil exports risks pushing Brent futures above $US100 a barrel in the short term,” he added.

Despite the strong moves in oil prices, however, some analysts have held back from forecasting any long-term impact to the oil price.

Analysis by Clocktower Group, macro-advisers for Australia’s Future Fund, noted that, historically, the Israeli-Palestinian conflict had been “macro irrelevant” for oil prices.

“This century, several incidents have had no perceptible impact on crude prices,” said Marko Papic, chief strategist for Clocktower, in a note on Monday.

“Even the 2006 Lebanon War, a major conflict involving large-scale conventional military manoeuvres, had no impact on crude or broader global assets,” he said.

Meanwhile, ANZ analysts Brian Martin and Daniel Hynes pointed to another oil producing Middle East nation quickly becoming embroiled in the conflict.

“Key for markets is whether the conflict remains contained or spreads to involve other regions, particularly Saudi Arabia,” they wrote in a note to clients.

“Initially at least, it seems markets will assume the situation will remain limited in scope, duration, and oil-price consequences. But higher volatility can be expected.”

Saudi Arabia, which reiterated its critical stance on Israel’s “continued occupation [and] deprivation of the Palestinian people” following the attack, remains in US-led negotiations, to normalise its relationship with Israel.

That’s after global oil prices soared more than 25 per cent in the September quarter, with Brent briefly touching a high of $US96.62 a barrel, following pledges from OPEC+ members including Saudi Arabia to cut production.

With tension growing in the region, Clocktower’s Mr Papic said investors were right to assume Saudi Arabia would not easily be enticed to increase oil production to ease oil prices.

“We would not bet on [Saudi Arabia] holding out forever. It simply depends on what kind of concessions Saudi Arabia extracts out of the US.”