“WE’LL BE BEGGING FOR OIL”: Oil crisis sparked by Israel war could lead to +40% stock crash
It won’t happen in the coming days, but within weeks a protracted hot war between Israel and Palestine will lead to a significant oil crisis that will have major economic and market ramifications across the world, analysts have suggested.
Renowned oil and energy trader, Pierre Andurand of Andurand Capital, says the conflict comes at an already troublesome time for oil supply – with global inventories already low, and Saudi and Russian production cuts poised to lead to more inventory draws in the coming months.
“Over the last 6 months we have seen a very large increase in Iranian supply due to weak enforcement of sanctions. As Iran is also behind Hamas’ attacks on Israel, there is a good probability that the US administration will start enforcing those sanctions on Iranian oil exports more tightly… That would further tighten the oil market” said Andurand.
“The market will eventually have to beg for more Saudi supply, which I believe, will not happen sub $110 Brent,” he adds.
Like the 1973 oil crisis?
The oil shock of 1973–1974, occurred after Arab oil-producing states blocked the supply of oil to the west in response to the United States supporting Israel’s military in the Yom Kippur War.
The move caused oil prices to skyrocket almost 300%
The Yom Kippur War began on October 6, 1973, when Egypt and Syria launched a surprise attack on Israel during the Jewish holiday of Yum Kippur.
The so-called “surprise” attack by the Palestinian military group, Hamas, on Israel this weekend comes 50 years and one day after the 1973 attack, leading many to draw parallels.
Whether those parallels will extend to oil markets is yet to be seen.
1973 and 1974 saw one of the worst bear markets in global stocks since the Great Depression. During the period, the Dow Jones sunk 45%.
Furthermore, U.S. inflation climbed to 12% in 1974, amplifying the global economic and market pain.
Iran a key player
Iran’s involvement in the Israel war will be a critical factor in whether or not an oil crisis progresses in 2023 or 2024.
Pierre Andurand warns that if the U.S. takes action against Iran for being behind the Hamas attacks there is “the probability that this will lead to direct conflict with Iran.”
Javier Blas, a Bloomberg energy and commodities expert and author of ‘The World for Sale‘ is also of the view that the most immediate impact on oil markets will come if Israel concludes that Hamas acted on instructions from Tehran.
“In that scenario, oil prices could go much higher. In 2019, Iran demonstrated, via Yemeni proxies, that it’s able to knock down a significant chunk of Saudi oil production capacity. It could do the same as retaliation if it finds itself under Israel or American attack,” wrote Blas in an article on Bloomberg.
Blas points out that since late 2022, Washington has ignored surging Iranian oil exports that have been bypassing American sanctions.
This saw Iranian oil output surge nearly 700,000 barrels a day so far in 2023. But this will now likely end following the Hamas attack.
“The White House is now likely to enforce the sanctions (following the Israeli war),” says Blas.
“That could be enough to push oil prices to $100 a barrel, and potentially beyond.”
Already the U.S. Strategic Petroleum Reserve is at its lowest level in history, leaving the United States in a precarious position should tensions with the Arab world continue to escalate.
Last week, Asia Markets published analysis on the emergence of a global diesel fuel shortage. Read more below.