- The Israel-Hamas war could cause significant disruptions to the global oil market, similar to the 1973 Oil Crisis.
- Iran may retaliate through oil embargoes or attacks on key oil facilities, which could severely impact global oil supplies and prices.
- China’s influence has so far prevented a full-scale oil embargo, as it prioritizes its economic recovery and stable relations with the West.
As with the Russia-Ukraine War, a key component of the Israel-Hamas War (and the underlying conflict between Israel and Hamas’s sponsor, Iran) is oil. The question of how core European countries are to keep their economies going if Russian oil and gas flows are fully sanctioned has long threatened to derail the West’s response to increased Russian aggression in Europe. The question of whether Iran’s response to increased Western and Israeli actions against it and its terrorist proxies will include operations directly targeted at the global oil sector threatens chaos in the oil market of a sort not seen since at least the 1973/74 Oil Crisis.
The parallels between the onset of the current events in the Middle East and those that preceded the 1973 Oil Crisis are uncanny. Back then, Egyptian military forces moved into the Sinai Peninsula, while Syrian forces moved into the Golan Heights — two territories that had been captured by Israel during the Six-Day War of 1967 — on the holiest day of the Jewish faith, Yom Kippur. This was the same multiple-directional attack method and religious date as the 7 October Hamas attacks used 50 years later by Hamas on targets across Israel. The 1973 attack by two major Arab states on Israel then drew in further Islamic countries in the region as the conflict became one centered on religion rather than simply regaining lost territory. Military and other support came to Egypt and Syria from Saudi Arabia, Morocco, Algeria, Jordan, Iraq, Libya, Kuwait, and Tunisia before the War ended on 25 October 1973 in a ceasefire brokered by the United Nations. The conflict in its broader sense, though, did not end there. An embargo on oil exports to the U.S., the U.K., Japan, Canada, and the Netherlands was imposed by key OPEC members, most notably Saudi Arabia, in response to their collective supplying of arms, intelligence resources, and logistical support to Israel during the War. By the end of the embargo in March 1974, the price of oil had risen around 267 percent, from about US$3 per barrel (pb) to nearly US$11 pb. This, in turn, stoked the fire of a global economic slowdown, especially felt in the net oil importing countries of the West.
Related: Houthi Havoc: Oil Flows Shift as Ships Avoid Red Sea
Early in the current Israel-Hamas War, Iran called on a similar embargo on oil to the same supporters of Israel by Islamic OPEC members. At that point, and to date, such a call has not been heeded, principally due to pressure from the present major supermajor influence in the Middle East – China. Two reasons have so far held good in Beijing’s willingness to steer Middle Eastern OPEC members away from such an embargo. The first is that it would threaten its still struggling economic recovery in the aftermath of its Covid years as it has been the world’s largest gross importer of crude oil since 2017. Additionally, the economies of the West remain its key export bloc, with the U.S. alone still accounting for over 16 percent of its export revenues. According to a senior European Union energy security source exclusively spoken to by OilPrice.com, the economic damage to China would dangerously increase if the Brent oil price traded over US$90-95 per barrel for more than one quarter of a year. The second reason is that the U.S. had previously brought pressure on China for it not to allow to a price-busting embargo, as the economic and political consequences to Washington of this would be at least as disastrous as they would to China.
