War in the Middle East between Israel and Palestinian militants from the Hamas group is set to drive oil prices higher, leaving analysts questioning by how much.
Following Saturday’s initial attack on Israel and the proceeding declaration of war, oil prices jumped on Monday morning.
Brent Crude climbed by 3.4% to US$87.44 per barrel, as per Trading Economics, while West Texas Intermediate jumped 3.8% to US$86.10.
Given remaining uncertainties on how the war will pan out, Citigroup analysts tipped oil prices would continue upward and that it was rather a matter of how long this would last.
“Timing is everything,” the bank said in a note, adding that any rapprochement between the two forces would likely be a way off, while the possibility of Saudi Arabia ending its production cut was also low.
“Meanwhile, any expansion of battles will have potential repercussions on oil markets,” Citi added.
Having come under attack by Hamas forces over the weekend, Israel ordered a “complete siege” of the Gaza Strip on Monday, after declaring war.
Almost 1,200 people are feared dead meanwhile, marking a tragic uptick in casualties seen in the region to multi-decade highs.
Analysts explained that fears for global oil prices stem from any further escalations in the conflict to other countries.
“The risk of course is that broader political powers become involved,” Liberum said.
Both Citi and Liberum pointed to potential involvement from Iran, which has openly backed Hamas, with further risk coming from any involvement of powers elsewhere.
“War is never good,” Liberum analysts said, adding that “as long as the event stays local, the price effect should be manageable”.