(NEW YORK) — Oil prices have climbed over fears the Israel-Hamas war could embroil the wider petroleum-producing Gulf region and threaten global output.
The global Brent oil benchmark rose nearly 5% in trading on Monday, reversing some of a major decline in recent weeks that had cheered many market onlookers and car drivers.
The price of crude oil holds major implications for the economy and consumers through its direct effect on costs as an input into products ranging from gasoline to plastics.
Even more, crude oil prices manifest in the cost of a much wider range of goods because the production and transport of many products depend on oil, economy and trade analysts told ABC News.
Still, the ultimate impact of the Israel-Gaza war on oil prices remains uncertain, since a significant hike would require the expansion of the conflict to the wider Middle East, they added.
“The market is reacting to fears of a worst-case scenario: That a conflict in Israel magnifies throughout the region and affects global oil trade,” Timothy Fitzgerald, a professor of business economics at Texas Tech University who studies the petroleum industry, told ABC News.
“How realistic is that fear?” Fitzgerald added. “There’s a lot of uncertainty. We’re not sure how this will land.”
Days after reaching a recent low of about $84 a barrel, the Brent crude benchmark price approached $90 a barrel on Monday. In early trading on Tuesday, however, the price fell slightly, suggesting that oil prices had at least temporarily stabilized.
Neither Southern Israel nor the Gaza Strip play host to major oil and gas infrastructure, S&P Global Commodity Insights told ABC News in a statement on Monday.
However, the wider Gulf region is critical for the production and transport of a large share of global oil output. A broad conflict in the area could significantly curtail worldwide oil supply and send prices soaring, the research firm added.
“Global energy markets are closely watching the fallout,” S&P Global Commodity Insights said.
Much of the concern centers on Iran, which funds the terrorist group Hamas that carried out a surprise attack on Israel in recent days that has left at least 900 people dead and 2,600 others injured.
Iran has denied involvement in the attack. Israel and the U.S. have both said that they do not have any hard evidence of a direct Iranian role in the attack.
While sanctions have constrained Iranian oil output in recent years, the nation remains an oil producer and asserts control over the passage of tankers through the Strait of Hormuz, a trading route that facilitates the transport of about 15% of global oil supply, Fitzgerald said.
“It’s a big choke point,” Fitzgerald said. “In the worst-case scenario, if you were to cut off all of the oil coming out of the Strait of Hormuz it would be a massive shock.”
An expansion of the conflict beyond Israel and the Gaza Strip would push crude oil prices higher but gas prices would not necessarily follow suit, Patrick de Haan, the head of petroleum analysis at GasBuddy, told ABC News.
A seasonal shift from busy summer travel to relatively quiet fall months has cut demand for gasoline, de Haan said. In the event of a prolonged rise in oil prices, the drop off in demand for gasoline could help prevent prices at the pump from rising, de Haan said.
“While crude oil prices play a big role in what we pay at the pump, those seasonal factors disrupt what we pay for gasoline,” de Haan said.
A prolonged environment of elevated oil prices, though, would eventually push gas prices higher, de Haan added. “It would require something extraordinary,” he said.
Beyond gasoline, a large swathe of products could see price increases if oil costs ripple through the production and transport of goods, leading companies to pass along those added expenses to consumers, Fitzgerald said.
Inflation has fallen significantly from a peak last summer but it remains more than a percentage point above normal levels.
A surge in oil prices would complicate the Federal Reserve’s effort to reduce inflation while averting a recession, an outcome known as a “soft landing,” Fitzgerald added.
“This kind of shock makes a soft landing more difficult to achieve,” Fitzgerald said. “It adds another layer of complexity.”
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