Analysts believe both Israel and Iran want to avoid a full-blown conflict

Rashid Husain Syed: Oil prices spike then fall after anticipated Israeli strike on IranOil markets have remained relatively calm, which is a significant relief. The Israeli retaliatory strike against Iran on Friday morning was minimal, allowing Tehran to label the attacks as almost a non-event. This contributed to stabilizing the markets, at least for now.

The Israeli response was regarded as so weak that Israel’s hawkish national security minister, Itamar Ben Gvir, conceded he wasn’t happy with his country’s response. “Weak,” he said in a one-word post on X in Hebrew, while the Iranian state TV dismissed Friday’s strike, blasting it as “Israeli and American media propaganda.”

Following the attacks, oil market prices spiked – then fell.

In a nearly immediate response to the widely anticipated Israeli strike on Iran, oil prices briefly spiked on Friday morning. However, they swiftly receded as Iran’s state media seemed to play down the significance of the strikes, and it became evident that the Israeli retaliation was quite limited. It appeared more like a public relations maneuver aimed at appeasing domestic audiences.

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Despite a modest increase in oil market prices on Friday, there was still a weekly decline. Brent futures closed up by 18 cents, or 0.21 percent, at US$87.29 per barrel. The front-month U.S. West Texas Intermediate (WTI) crude contract for May ended 41 cents higher, or 0.5 percent, at US$83.14 per barrel. Meanwhile, the more active June contract closed 12 cents higher at US$82.22 per barrel.

Ultimately, it turned out to be nothing “but a big show, and so the markets deflated as quickly as they spiked,” Tim Snyder, an economist at Matador Economics, said.

A similar scenario unfolded just a week prior when Iran launched a barrage of missiles toward Israel. On Apr. 12, as the weekend drew near, it was widely understood that an Iranian attack on Israeli territory was imminent within the next 24 to 48 hours. And that led to a spike in oil prices on Apr. 12.

The Iranian attack on Apr. 13 was also regarded by most as ‘measured and calculated.’ It lasted a mere, few ‘tense’ hours, and was calculated and ‘measured’, with enough warning. The attacks were not designed to bring about large-scale damages, destruction and fatalities in Israel, analysts underlined. It was more to follow up on its words of responding to Israel’s Apr. 1 attack on the Iranian consulate in Damascus, at ’a time and place of its choice’.

Once the markets resumed trading on Monday, Apr. 15, there was a brief spike in oil prices, followed by a subsequent decrease and stabilization – mirroring the current situation. This pattern repeated after the Israeli retaliatory strike on Iran early last Friday.

Analysts believe the action and the counteraction by both Iran and Israel show that both sides wanted to avoid a full-blown conflict that could choke off the supply of oil to the world from the oil-rich Middle East.

Further, increased U.S. crude oil inventories, which shot up last week by 2.7 million barrels to approximately 460 million barrels, also helped calm the crude oil markets. Markets also took into account that OPEC+ has a spare capacity of roughly six million barrels per day (bpd), and that capacity could be immediately brought into the markets if required. “Traders are also relatively sanguine because Opec+ producers, which have been implementing voluntary cuts since 2022, will be ready to pump more crude in the event of an escalation that causes prices to jump towards US$100”, the Financial Times reported in a follow-up piece.

Maintaining control over inflation is a key priority for most central banks today. The prospect of rising oil prices poses a significant threat to these efforts, a reality many recognize. Such an outcome cannot be allowed. Moreover, in an election year, the Biden administration cannot afford a significant increase in gas prices. Consequently, there has been mounting diplomatic pressure on both Israel and Iran from various quarters to de-escalate tensions in the region.

Hectic, behind-the-scenes diplomacy is making an impact. There is now a growing confidence in the market that the Israeli action will not escalate into a broader conflict in the Middle East. For the time being, the oil markets have shrugged off the Israeli attacks, and the possibility of any expansion of the war theatre in the Middle East has gone down.

All this could eventually lead to a reduction in war premium, and oil prices could fall, at least to some extent, over the next few days and weeks – unless something unforeseen overtakes the markets.

Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.

For interview requests, click here.


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