Israel-Palestine War: Crude Oil Prices Jump, Knee-Jerk Reaction Across All Asset Classes

A sudden attack by Iran-backed Hamas, a Palestinian militant group, killed over 700 in Israel in the past two days sparking geo-political tensions. Crude oil prices shot up and the war is expected to heavily weigh on stock markets globally and boosting gold's safe haven appeal.

Historically, it is observed that whenever there is some kind of conflict in the middle east, oil prices goes up and traditionally most energy prices have remained high during winter.

Source to the GFX is Investing.com

Red hot inflation, fear of a global recession and a correction to prices that were surging in recent months sent oil prices to $95 per barrel a few weeks ago but prices cooled off in the past week. Oil was trading at $82 per barrel just a few hours before it jumped 5% to $86 per barrel following the shocking attack on Israel.

Previously crude oil had sky rocketed to over $130 per barrel when Russia invaded Ukraine in February 2022. It was trading at $87 per barrel around 1000 IST.

"Following Hamas' devastating attacks on Israel over the weekend and the retaliatory actions taken by Israel in Gaza, it is no surprise that the oil market opened stronger this morning. There are reports that Iran helped Hamas plan the attacks and gave them the "green light". If this is proven to be true, we could see the US, an ally of Israel, taking a tougher stance against Iran, which could ultimately lead to a reduction in oil supply," said Warren Patterson, head of commodities strategy at ING based in Singapore.

"We do not expect OPEC+ to adjust their output policy as a result of recent developments. However, if we were to see significant strength in prices, i.e. Brent trading above $100/bbl, there is a possibility that Saudi Arabia would start to unwind their additional voluntary supply cut of 1MMbbls/d."

The expected cut in supply have shot crude oil prices up by nearly $5 in a day.

In the Indian stock market, NIFTY and Sensex and most other indices were trading in red. Global stocks also showed a downward trend except Hang Seng.

"The Israel-Hamas conflict has introduced a huge uncertainty for the markets. Nobody knows how this war is going to evolve. From the market perspective it is important to understand that even though the death and destruction are tragic, presently it is unlikely to cause major disruption in oil supplies thereby impacting major oil importers like India," said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

"But the situation will change if Iran, a major Hamas supporter, is drawn into the war. That can disrupt oil supplies causing a spike in crude, which can trigger a risk-off in the market. This is a time to be cautious. Investors may refrain from taking big risks. Wait for the developments to unfold. Long-term investors can slowly accumulate high quality stocks on declines."

Gold prices climbed more than 1% as following the clash as investors spurred a rush to safe haven investments like bullion.

Praveen Singh - Associate VP, Fundamental Currencies and Commodities, Sharekhan by BNP Paribas said, Today, the Hamas-Israel war is boosting safe haven demand for gold. The metal may gain further as the war intensifies with rising death toll.