The Middle East accounts for 31 percent of global oil production, 18 percent of natural gas production, 48 percent of the world’s proven oil reserves, and 40 percent of the world’s proven natural gas reserves. Therefore, it is easy to understand why any military activity in the region affects oil and natural gas markets. Typically, oil prices spike as soon as news breaks of violence that could destabilize the region. Most of the time, that price spike proves fleeting because it soon becomes apparent that the event will not affect major oil players or energy-strategic areas. Such was the case during Hamas’s past attacks on Israel, and after Syria’s recent assaults on militant groups in that country.

This Hamas attack is different. The enormity and scale of the atrocities committed, the involvement of a key player in the oil market (Iran), and Israel’s newfound status as a natural gas producer and exporter mean that the threat to global energy markets remains high.

Though American officials say that they still lack evidence that connects Iran directly to the attacks, a New York Times investigation found that leaders from Iran, Hezbollah, and Hamas jointly planned the attack and trained the Hamas militants who executed it. In any case, Hamas would not have been able to accomplish such an incursion without Iran’s material assistance. Iran sends at least $100 million to Hamas every year, and Hamas missiles are built with Iranian parts and from Iranian designs. If Israel retaliates against Iran directly—or indirectly by striking Hezbollah or Iranian Islamic Revolutionary Guard Corps operatives in neighboring countries—the localized conflict could become regional, especially if U.S. officials preapproved an attack.

The greatest potential for regional escalation is in Lebanon, where Hezbollah (a terrorist group started and funded by Iran) might attack northern Israel to draw attention from Gaza and divide Israel’s forces. On October 12, Israel destroyed runways at both the Damascus and Aleppo airports in neighboring Syria, preventing Iranian jets from landing there. Iran could react by threatening the security of the Strait of Hormuz, a key passage for Persian Gulf oil exports. So far, the U.S. has not made any changes to its military deployment in the Persian Gulf, but Defense Secretary Lloyd Austin sent an aircraft carrier strike group to the eastern Mediterranean early last week and ordered a second aircraft carrier to the same region on October 14 with the express purpose of deterring “any state or non-state actor” from escalating the conflict. Any military activity in the Persian Gulf, especially involving safe passage through the strait, would cause a serious spike in oil prices, because daily shipments making up approximately 21 percent of the world’s oil consumption travels through that chokepoint.

Iran is currently the third-largest oil producer in the Middle East behind Saudi Arabia and Iraq, averaging more than 3 million barrels per day (BPD) in September, according to S&P Global. According to, Iran exported about 1.6 million BPD of oil in September, mostly to China, bringing in an estimated daily value of $144 million. Even though Iranian oil is technically under U.S. sanctions, Iran has been able to sell its oil to customers willing to risk U.S. ire or willing to execute complicated ship-to-ship transfers along tanker routes designed to disguise the origin of the crude oil. The higher the price of non-sanctioned crude oil, the more attractive sanctioned, or “black market,” crude oil becomes to consumers. It is possible that the United States will try to tighten its sanctions on Iranian oil, especially as political pressure on the Biden administration rises. Unless the U.S. is willing to use its naval forces to detain tankers suspected of carrying Iranian oil at sea or to blockade Iranian tankers attempting to leave the Persian Gulf, tightening sanctions will carry no weight.

The day before the Hamas attack, according to the Wall Street Journal, Saudi Arabia told the Biden administration that it would consider boosting oil production in 2024 to bring down oil prices as a gesture of goodwill to secure a deal in which Saudi Arabia recognized Israel in exchange for a defense pact with the United States. The deal was believed to include U.S. nuclear assistance, as well. Saudi Arabia is unilaterally withholding 1 million BPD of oil production from the market to prop up prices. The move suggests that Riyadh is concerned that the Biden administration wants to reopen nuclear-weapons negotiations with Iran and is looking to secure U.S. commitment to its defense beforehand. Saudi Arabia was also apparently willing to relinquish its demand that its recognition of Israel occur only within the context of a regional peace plan, including the creation of a Palestinian state. Multiple analysts and academics, including me, have posited that Hamas’s attack was timed to destroy any hope of such a deal.

Of note, this past June, Saudi Arabia resumed diplomatic relations with Tehran, allowing Iran to reopen its embassy in Riyadh. On October 12, Saudi Crown Prince Mohammed bin Salman received a phone call from Iran’s President Ebrahim Raisi. The Saudi press release about the call stated that the crown prince expressed Saudi Arabia’s “unwavering stance in standing up for the Palestinian Cause [sic] and supporting efforts aimed at achieving comprehensive and fair peace [sic] that ensures the Palestinian people’s legitimate right.” This statement is notable because it does not use the term “Palestinian state,” indicating that Saudi Arabia hopes it can revive its defense negotiations with the U.S.

If the conflict expands to the Persian Gulf, Saudi Arabia will be pressed to ramp up production quickly. Aramco, the Saudi national oil company, is well prepared to do this and has demonstrated that it can accelerate production to 12.3 million BPD within the span of just a few weeks. The issue will be getting that oil out of the Strait of Hormuz. Aramco does have the capacity to send oil produced in the eastern parts of the country through its East-West Pipeline to refineries and ports on the Red Sea, but these pipelines and ports are not set up to handle that much oil. In this event, oil from the United States and from China’s strategic reserves would be crucial in keeping global prices from skyrocketing.

The market most affected since the violence commenced has been the one for Europe’s natural gas. This market is already under pressure because of the sabotage of the Nord Stream pipelines and sanctions against Russian natural gas. In recent years, Israel has emerged as an important natural gas producer and exporter in the Mediterranean region. Through its offshore gas fields, Tamar and Leviathan, Israel has been supplying its domestic energy needs and exporting gas to Jordan and Egypt. Egypt has also been liquefying Israeli natural gas in its two liquefaction plants and exporting it to Europe. Since the attacks, Israel ordered operations in the Tamar field shut down. This has caused a rise in natural gas prices in Europe that shows no signs of abating in the near term.

Israel cannot agree to a ceasefire with Hamas. The brutality of the attacks on Israelis in their homes and the inhumanity of the torture being inflicted on the Jewish women, children, and elderly held hostage have provided Israel with sufficient cause to annihilate Hamas. But the question remains whether the resulting conflict will expand to include Hezbollah—and, from there, Iran, Saudi Arabia, and 30 million BPD of the world’s oil supply.

Photo by JACK GUEZ/AFP via Getty Images


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