Oil prices surge 5% amid US-Israel discussions on strikes against Iran
The price of oil has surged by 5% following remarks from US President Joe Biden, who confirmed that the US is in discussions about potential Israeli strikes on Iran’s oil industry. During a visit, Biden was asked if he would support Israel targeting Iran’s oil facilities, to which he responded: “We’re discussing that.”
Iran, the seventh-largest oil producer globally, exports about half of its production, primarily to China. The escalation in tensions following Iran’s missile attack on Israel has contributed to a 10% rise in the price of Brent crude oil, bringing it to $77 per barrel. However, this figure remains lower than earlier peaks seen this year.
A sustained rise in oil prices could lead to higher costs for petrol, gas, and electricity, further driving inflation. So far, ample oil supply from Saudi Arabia and weakened demand from China have kept prices relatively stable throughout the year.
Although the market reaction has been more subdued than during Russia’s invasion of Ukraine in 2022, the growing violence in the Middle East is now causing concern. A major point of worry is the potential disruption of the Strait of Hormuz, a critical passage for one-third of the world’s oil tanker traffic and one-fifth of its liquefied natural gas (LNG) shipments.
The global reliance on LNG tankers has intensified since the Russia-Ukraine war, and while Asia is most dependent on Persian Gulf energy supplies, any disruption would have immediate effects on global prices.
On Thursday, Bank of England Governor Andrew Bailey warned of the “very serious” potential impact of rising oil prices, stating that he was closely monitoring developments. This situation emerges just as central banks worldwide have begun to declare progress in managing the inflation shocks caused by the pandemic and the Ukraine conflict. It may also explain why G7 leaders are working to moderate Israel’s response to Iran’s actions.
