Oil Climbs for Third Day as Middle East Supply Risks Dominate

The global oil market has witnessed a surge in prices over the past three days, with Middle East supply risks taking center stage. Ongoing conflicts and tensions between Israel and its neighbors, such as Iran and Hezbollah, have exacerbated concerns about potential disruptions to oil supply chains and pricing.


The escalation of the Israel-Gaza war and Iran's role in facilitating attacks from Hamas, Hezbollah, and the Houthis have raised fears of a serious escalation that could threaten global energy supplies. However, the real risks to the energy sector lie elsewhere.

The risks in the Strait of Hormuz are often overblown, as Iran is extremely unlikely to close the strait due to economic, political, and geographic realities. Iran has too much to lose by exposing its own tankers to foreign navies and jeopardizing its relations with key trading partners. Moreover, tankers can deviate from the safest route through Iranian waters, making it practically impossible for Iran to halt shipping.


Instead, policymakers should focus on more realistic energy risks in the region. Disruptions to Israel's natural gas exports, particularly to Egypt and Europe, could have significant implications for global energy markets. Israel's natural gas fields remain vulnerable in the event of a military escalation between Israel and Hezbollah. If gas exports were halted, Egypt could face an energy shortage, potentially impacting decisionmakers involved in negotiations.

Furthermore, the threat of Houthi attacks on ships transiting the Red Sea cannot be overlooked. Iran is supplying the equipment the Houthis are using to threaten seaborne trade, which could lead to supply chain disruptions and increased insurance costs.

In conclusion, while the Middle East supply risks continue to dominate the global oil market, the focus should be on more realistic threats to energy security. Policymakers and industry leaders must work together to mitigate these risks and ensure the stability of global oil supply chains.