President Joe Biden on Friday discouraged Israel from striking Iranian oil facilities, after prices jumped about 5% a day earlier when the president suggested the U.S. was discussing the possibility of such an attack. Biden has also said he opposes Israel hitting Iran’s nuclear facilities.
It’s still unclear what form Israeli retaliation will take, said Helima Croft, head of global commodity strategy at RBC Capital Markets. The impact on the oil market would be significant if Israel struck Kharg Island, through which 90% of Iran’s crude exports pass, Croft said.
“We do really have to see what the Israelis hit, what would the Iranian response mechanism be” Croft told CNBC’s “Worldwide Exchange” on Monday. “But certainly we have not been closer to a regional war in a long time.”
The market right now is only pricing in the possibility of Israel striking Iran’s oil facilities but that is not the worst-case scenario, Alan Gelder, vice president of oil markets at Wood Mackenzie, told CNBC’s “Squawk Box Europe” on Monday.
The worst-case scenario is a disruption in the Strait of Hormuz, through which 20% of the world’s crude exports flow, Gelder said. Iran might target the strait in response to an Israeli strike, which would have a far more dramatic effect on crude prices, the analyst said.
The war between Israel and Hamas in Gaza has now ground on for a year with no end in sight. The conflict has increasingly escalated into a multifront war in the Middle East. Israel is battling Hezbollah in Lebanon and has struck Houthi militants in Yemen, in relation for rocket attacks by those groups.
Hamas, Hezbollah and the Houthis are allied with Iran. The war in the Middle East has not led to a disruption of crude supplies so far, but analysts warn the risk is rising the longer the conflict continues.
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