Oil Prices Surge As US President Biden Discusses Potential Israeli Strikes On Iran

During a visit, when asked whether Joe Biden would support Israel targeting Iran's oil facilities, he replied, "We're discussing that"

The global price of oil surged by 5 per cent following comments from US President Joe Biden, who indicated that the US is discussing potential Israeli strikes on Iran's oil infrastructure. During a visit, when asked whether he would support Israel targeting Iran’s oil facilities, Biden replied, "We're discussing that."

Iran, ranked as the world's seventh-largest oil producer, exports roughly half of its production, primarily to China. Following Iran’s missile strike on Israel earlier this week, the price of Brent crude oil has increased by 10 per cent, reaching $77 per barrel. However, this remains below the peak levels seen earlier this year.

Any sustained rise in oil prices could result in higher fuel costs, as well as increased gas and electricity bills, potentially driving up inflation rates.

Thus far in 2024, weak demand from China and robust oil supply from Saudi Arabia have kept oil prices in check. The oil market’s reaction to the recent Middle Eastern tensions has been relatively restrained compared to the market’s response to Russia's invasion of Ukraine in 2022. However, fears over escalating violence in the region are now unsettling investors.

A primary concern is the potential disruption of the Strait of Hormuz, a key chokepoint through which one-third of global oil tanker traffic and a fifth of liquefied natural gas (LNG) shipments pass. The global reliance on LNG shipments has intensified since Russia’s war with Ukraine.

While Asia is the region most directly dependent on oil and gas flows from the Persian Gulf, any escalation in the Middle East could have immediate and substantial impacts on global prices.

Bank of England Governor Andrew Bailey warned on Thursday of the "very serious" potential ramifications of rising energy prices, noting that he is monitoring the situation closely. This development comes at a time when central bankers were beginning to declare victory over the inflationary shocks triggered by the Covid-19 pandemic and the Ukraine war.

The potential for further economic turbulence may also explain why G7 leaders are advocating for a measured response from Israel in the wake of Iran’s recent actions.