Political window dressing: why oil prices ignore Israel's strike on Iran
- Alex Budris Forbes Editorial
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Photo by Jakub Porzycki/NurPhoto via Getty Images In the early morning of April 19, Israel launched a retaliatory missile attack on Iran. Oil prices immediately responded with growth, but then retreated again. The market did not believe that the conflict would move to a new level, analysts surveyed by Forbes believe
On April 19, Israeli long-range aircraft launched a missile attack on Iranian Air Force targets in Isfahan, in the central part of the country, the Israeli newspaper The Jerusalem Post reported. The New York Times wrote, citing two unnamed representatives of the Israeli Ministry of Defense and three Iranian officials, that such a strike actually took place. Reuters, citing Iranian media and Iranian officials, reported a small number of explosions that occurred after Iranian air defenses shot down three drones over Isfahan.
The Israeli attack was launched in response to the Iranian one. On the night of April 14, Iran launched a massive attack on Israel using more than 300 drones, cruise and ballistic missiles. The attack was repelled: with the help of the United States, Great Britain, France and Jordan, the IDF said 99% of targets were intercepted, and only a small number of ballistic missiles penetrated Israeli airspace. The Iranian raid was in turn a response to the Israeli strike on the Iranian consulate in Damascus on April 1, during which seven senior Iranian military personnel were killed.
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Oil rose, then fell
June Brent crude futures responded immediately to reports of the attack, rising 4% to $90.63 a barrel early Friday, but later retreated to $86.31. June futures for the American WTI behaved similarly, which rose by the same 4%, to $85.61, and then dropped to $81.27 per barrel.
Brent from TradingView
“The market reacts to the situation at the moment,” explains Alexey Gromov, chief director for energy at the Institute of Energy and Finance. “There’s an attack, nothing is clear yet, and prices are jumping, but as soon as traders start to figure it out and get information from news feeds, they understand that all this is political window dressing. Thus, the market very correctly noticed this trend of conditional escalation of the conflict.”
The latest attacks by Israel and Iran looked like a carefully staged show with minimal casualties without serious damage to infrastructure, agrees Maxim Khudalov, chief strategist at the investment company Vector X. “This makes us think that both sides do not want conflict and are trying to save face for now,” he notes. “However, this does not exclude a sharp escalation in the region, to which prices will react, but for now events are developing according to a safe scenario.”
A week ago, recalls Gromov from the Institute of Energy and Finance, everyone was expecting an aggravation in the Middle East region, but everything was limited to a demonstrative strike by Iran, and the oil markets reacted very weakly to this. “I believe that now market participants, primarily Iran and other countries in the region, are extremely uninterested in the escalation of the conflict and its escalation into some kind of real war,” he says. “I think that the nature of the attacks that we saw from both Iran and Israel shows that this is just a kind of demonstration of force, aimed primarily at the domestic consumer. And therefore, it seems to me that we definitely shouldn’t expect any serious surge in oil prices in the near future.”
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The market has adapted
The market has already adapted to almost all the geopolitical risks that have emerged in the region recently, Gromov notes. He recalls that last year there were fears that the price of oil could rise sharply due to attacks by the Yemeni Houthis on ships in the Red Sea. “The attacks have not stopped, there are periodic reports of shelling and the hijacking of ships and a reduction in shipping through the Suez Canal, but nevertheless, oil prices, which reacted nervously at the very beginning, then calmed down,” he says.< /p>
Oil prices are also not responding to the conflict in the Gaza Strip, which continues to develop in a low-intensity mode, as market participants do not believe that Iran is capable of a long-term serious conflict with Israel. The market's main concern is that Iran could restrict shipping in the Strait of Hormuz, which could spike oil prices due to widespread supply disruptions, Gromov said. “But so far we have not seen this and, I think, we will not see this in the near future,” the expert notes.
The Strait of Hormuz, connecting the Persian Gulf with the Indian Ocean, is one of the main transport arteries of the world energy market, through which approximately 20% of the world's consumption of liquid hydrocarbons passes. On its shores are Arab countries rich in oil and gas: Saudi Arabia, Iraq, Iran, Kuwait, Qatar and Bahrain.
Oil prices may rise in the event of a serious escalation, which will make levels above $100 per barrel realistic, believes the investment director of Loko-Invest » Dmitry Polevoy. “But so far it looks like both sides are not ready to increase the level of direct confrontation,” he adds.
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An expert at the Financial University and the National Energy Security Foundation, Stanislav Mitrakhovich, believes that oil and gas prices should go down following the results of the current stage of the conflict, since there are no signs that the parties are ready to escalate this conflict. “Everyone involved is afraid of it,” he says. — Iran, despite all the belligerent rhetoric, fears a full-scale war involving the Americans, Israel also fears escalation. Americans do not need a rise in oil prices before the elections at all. That's why the Americans are holding back Israel. Each side is trying to save face. As a result, we see that the price of oil is decreasing, although not critically. It is clear that fears of war are subsiding.”
At the same time, Mitrakhovich believes, events in the Middle East may play into Russia’s hands, since the conflict there has not been finally resolved. The expert believes that Russia, in negotiations with importers of Russian hydrocarbons, in particular China, should more actively promote the thesis that supplies via pipeline routes, as well as along the Northern Sea Route, are much safer than through regions that could become the scene of hostilities . “Even some projects that now seem extravagant, for example, supplies to India through the Northern Sea Route, may no longer seem so if the Strait of Hormuz is closed,” summarizes Mitrakhovich.
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Alex Budris
Forbes Editorial
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