Michael Rubin, a Senior Fellow at the American Enterprise Institute (AEI), outlined that a broader conflict in the Middle East “is growing likelier”. “Look, the collective policy of the United States, Europe, and the UN has for decades been to kick the can down the road,” he said.
“Eventually the road runs out. Did anyone really think that Hezbollah, Hamas, and the Houthis were arming themselves with ever-more sophisticated missiles and drones because they wanted them as backdrops for a parade?” he added.
And what would a broader conflict in the Middle East mean for oil prices?
“There would be a spike,” Rubin sid, “perhaps as high as $200 per barrel,” he added.
“Throw civil war in Venezuela into the mix, and maybe $250 per barrel,” he continued. “But markets adjust. Demand reduces. Plus, the Middle East no longer has the monopoly over oil and gas it once did. There’s fracking, Nigeria, Alberta. offshore U.S., and many more locations that can help blunt the impact, even in the short-term, should governments choose to allow them to do so,” Rubin went on to state.
Maritime intelligence company Dryad Global advised its clients that the past two weeks have seen an unprecedented sequence of escalatory events that have the potential to lead to a major flare-up in the Middle East.“This sequence of escalatory events will likely lead to retaliatory attacks on Israeli territory and assets in the coming days,” Dryad warned.
“It is assessed that these are highly likely to impact commercial shipping through increased Houthi airstrikes on merchant vessels in the Red Sea, Gulf of Aden, and Arabian Sea, as well as IRGCN seizures of merchant vessels in the Persian Gulf and Gulf of Oman,” it added.
The company noted that “in line with this heightened risk”, it advises against “all transit of Israeli-linked vessels within the Red Sea, Gulf of Aden, Gulf of Oman, and the Persian Gulf until further notice”.
Matthey Bey, a senior analyst at RANE, told Rigzone that Iran and Hezbollah “will almost certainly retaliate in some form to the two … assassinations in recent days” and added that the scale could approach the size of Iran’s attack on Israel in April.
“The scale and manner of any Israeli retaliation will likely be dependent on the scale of Iran and its allies’ attack on Israel and whether or not there is significant damage or casualties.”
Bey said any escalation in the conflict would add a few dollars to oil prices as a risk premium, a conflict in Lebanon would not necessarily directly affect the Middle East’s oil and gas production located in countries like Iraq and Saudi Arabia, which he said means there may not be a change in the long-term oil supply and demand balance.
“However, if the United States gets involved and does so through deploying military assets based in Gulf Cooperation Council countries, Iran and its proxies could return to targeting GCC oil and gas infrastructure, which may have a more significant impact on the physical supply of oil if a crucial node is hit as was the case in the 2019 attack on the Abqaiq oil processing facility,” he said.
“With the exception of potential Hezbollah strikes targeting Israeli gas production and processing facilities, Iran and its allies’ initial round of retaliation is unlikely to target oil and gas production throughout the region,” he added.
“Prices would initially rise sharply if this conflict occurred, and then move towards a level that retains a higher risk premium but nearer the level that reflected actual (if any) changes in oil production or flows,” he said.
Josephine Mills, an Analyst at Enverus Intelligence Research confirmed that the Middle East produces over 20 percent of the world’s oil production and warned that any disruption to this production and/or ability to export crude to market would result in an increase to oil prices. “Iran alone contributes ~3.4 million barrels per day. If even just 15 percent of their production was impacted it would increase our 2H24 price forecast by ~$3,” Mills added.