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October 17, 2023

How is the Israel & Hamas Conflict Effecting the Energy Market

How will current conflicts around the world impact the energy industry, and will it push back our sustainability efforts?

The Israel-Palestine conflict, marked by years of tensions, took a violent turn recently with escalated rocket attacks and retaliatory strikes.

International reactions have varied, with some nations calling for restraint, while others have taken sides, further muddying the geopolitical waters.

Economic Ripple Effect

The recent hostilities have contributed to a surge in global oil prices. This sudden increase not only shakes global markets but also has a profound impact on both global and local economies, potentially leading to inflation and straining already tenuous economic recoveries post-Covid-19.

With other current conflicts going on, such as the Ukraine/Russia war, there has been an attempt to ‘weaponize’ gas by Vladimir Putin, this was to help leverage his steaks in the war and help his side make further steps into Ukraine, although the worldwide energy market took a hit, this attempt largely failed. But it will not stop others trying to undertake a similar tactic in the near future.

The potential long-term effects of geopolitical conflicts

“This can vary from region to region, however the current conflict between Israel and Hamas will have a significant impact on both fuel and energy prices. This comes as the middle eastern region generally accounts for about a third of global demand. Generally conflict in this region destabilises markets.”
“Throw in the mix of Iran who over the last year and a half they have grown, and their production and exports have surged heavily, and they are a major power in the region. Sanctions may limit them, but they always play a major political part in regional affairs. Should geopolitical situations continue then my opinion is it will push nations into sustainable energy resources sooner rather than later as they would not want to rely on global uncertainty.” – Shaun, Senior Energy Analyst

Historical Context

Past Geopolitical Conflicts

Throughout history, various geopolitical conflicts have disrupted global energy markets. For instance:

  • The Arab-Israeli War in 1973 led to an oil embargo that quadrupled global oil prices.
  • The Iran-Iraq War (1980-1988) and the Gulf War (1990-1991) saw significant oil production outages which consequently affected global oil prices.
  • The ongoing tensions and conflicts in the Middle East, a region rich in oil reserves, have often led to fluctuations in global oil prices due to disruptions in supply or fears thereof.

These historical examples demonstrate how geopolitical tensions can lead to uncertainty and disruptions in global energy markets, thereby affecting oil prices.

1973 Oil Crisis Comparison

The 1973 oil crisis is a pivotal event in the history of energy markets.

  • Triggered by an oil embargo by Arab oil-producing countries in response to Western support for Israel during the Yom Kippur War, this crisis saw global oil prices quadruple.
  • This not only led to severe economic repercussions worldwide but also marked the beginning of a new era of energy awareness and policy.

Drawing parallels between the current situation and the 1973 oil crisis can elucidate how geopolitical tensions, particularly those involving key oil-producing regions, can significantly disrupt global energy markets.

For example, both scenarios underline how geopolitical conflicts can cause supply disruptions, instigate fear of potential supply shortages, and lead to speculative trading, all of which contribute to soaring oil prices.

Current Impact

Oil Price Surge Analysis

The escalation between Israel and Hamas has contributed to a recent surge in oil prices. This surge is often a result of both real and perceived disruptions to oil supply, coupled with the geopolitical uncertainty that such conflicts create.

The data surrounding this surge could be illustrated through graphs or charts showing oil price trends before, during, and after significant escalations in the conflict.

Expert opinions could be sourced to provide insight into how these escalations are viewed within the energy sector, and what implications they might have for future pricing.

It's also worth exploring the ripple effects of the oil price surge on other sectors of the economy, such as transportation and manufacturing, and on consumer prices. The surge in energy prices can lead to increased costs for businesses and consumers, potentially driving inflation.

Supply Dynamics

The conflict has led to voluntary supply cuts by major oil-producing countries like Saudi Arabia and Russia, possibly as a means to stabilize prices or respond to geopolitical pressures.

Moreover, potential disruptions in key oil transit chokepoints like the Strait of Hormuz could exacerbate global oil supply issues. The Strait of Hormuz is a critical passage for global oil and gas shipments, and any conflict in the region could threaten the security of energy transit through this narrow waterway.

The dynamics of supply and how they're being affected by the conflict could further be explored by looking at changes in production levels, export/import levels, and any collaborative or unilateral actions taken by countries to secure their energy needs.

Will these conflicts impact worldwide sustainability efforts

“In the short to medium term it impedes the transition because of our natural reliance on fossil fuels, however what things like this does is highlight our need for longer term sustainable energy resources which could potentially accelerate it for the longer term.” – Shaun, Senior Energy Analysist

Global Reactions

International Community's Response

Various nations have displayed an array of reactions to the surging energy prices incited by the Israel-Hamas conflict. Some countries have vocalised concerns over the potential economic impact, while others have sought to leverage the situation to reinforce their energy security.

For instance, nations with robust renewable energy infrastructure might be showcasing their resilience in the face of global oil price volatility, emphasizing a shift towards more sustainable energy sources as a long-term solution.

Additionally, certain countries may be ramping up domestic oil production or looking to diversify their energy supply chains to mitigate dependency on volatile regions.

Noteworthy statements or actions from international leaders have underscored the global concern regarding the conflict’s impact on energy prices. These reactions often reflect broader geopolitical interests and the ongoing dialogue about energy security and economic stability in the face of geopolitical tensions.

Organisational Measures

On a larger scale, global organisations like the Organization of the Petroleum Exporting Countries (OPEC) are often at the forefront of discussions aimed at stabilising the energy market amidst geopolitical conflicts.

Measures proposed may include adjusting oil production quotas, fostering dialogue between oil-producing nations, and encouraging cooperation to ensure a stable energy supply.

Collaborative efforts or agreements, such as joint investments in strategic oil reserves or shared infrastructure, might be proposed or reinforced to ensure energy security and price stability.

Furthermore, discussions within these organisations may also extend to promoting energy diversification and advancing renewable energy solutions as a means to mitigate the impact of future geopolitical conflicts on the global energy market.

How should your business react to changes in energy costs?

“Procure early, we would assist you to manage consumption spikes better, and get ahead of the curve, at this point the prices are around a 24-month wholesale low, so you can gamble on them going lower but realistically we all know prices move upward over time.” – Dean, Contract Specialist
“In a nutshell, all of our services, which when used effectively helps our customers with risk management and risk mitigation.” – Shaun, Senior Energy Analyst

The linkage between the Israel-Palestine conflict and rising global energy prices is undeniable. The recent escalations serve as a stark reminder of how geopolitical tensions can significantly disrupt the global energy landscape.

The potential long-term implications of continuously rising energy prices amidst ongoing geopolitical conflicts could reshape the global energy landscape. It underpins the urgent need for a more diversified and resilient energy sector, able to withstand the vicissitudes of international politics and conflicts.

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