Oil price shock feared in Australia as tensions flare over Israel Gaza war

World oil prices have spiked after Hamas launched a shock deadly attack on Israel, which has declared war on Gaza.

This has sparked fear of an escalating conflict in the crude oil-rich Middle East.

Israel is not a major oil-producing nation but the Middle East holds about two-thirds of all known oil reserves.

Iran has been accused of helping plan the attack on Israel. And with much of the world’s oil passing through the Strait of Hormuz, retaliation from Israel against Iran could endanger oil supply and push prices up further.

Benchmark oil contracts Brent and WTI soared more than five per cent in early Asian deals before easing back slightly, recovering some of the past week’s dip.

Petrol prices at the bowser are already above $2 a litre in some Aussie cities and they could be pushed higher.

The worsening crisis has also sent shockwaves through global equity markets, although energy companies were boosted by higher oil prices which lift their profits and revenues.

The dollar, yen and Swiss franc, as well as gold, won strong support as they benefited from their status as a haven investment in times of heightened geopolitical turmoil.

But a number of airlines saw their shares take a large hit with a slew having suspended Israel-bound services for the time being.

Air France-KLM slumped 8 per cent while IAG, owner of British Airways, Iberia, Vueling and Aer Lingus, brought up the rear on the London market with a 6 per cent nosedive as Germany’s Lufthansa dropped 4.3 per cent. Low-cost carrier Easyjet similarly saw its market wings clipped.

“The surprise attack by Hamas has fuelled concerns about further instability in the Middle East which could in turn disrupt oil flows at a time when the market is already extremely tight and prices are high,” said Craig Erlam, senior market analyst with OANDA.

For Stone X analyst Fawad Razaqzada, with markets now in “risk off” mode, “investors are worried that the retaliation by Israel is going to be — as it has already — severe and will raise the tensions between Israel and many other countries around the region, including, of course, Iran.”

Wall Street and main European equity markets held their nerve, however, with the Dow flat two hours into the trading session while the tech-heavy Nasdaq shed around half of one per cent.

London equities were aided by strong gains for oil giants BP and Shell, though the FTSE-100 index ended flat while Paris and Frankfurt gave up just over half of one per cent.

Wall Street had rallied on Friday on data showing a forecast-busting jump in new jobs but a slowdown in wage growth.

The Middle East crisis has fanned concerns about crucial supplies at a time when supply worries are already high owing to output cuts by Saudi Arabia and Russia.

It has also renewed fears about the impact on inflation, with energy costs a key driver of spiking prices, giving a fresh headache to central banks as they try to ease up on interest rate hikes to avoid recessions.

Warnings of conflict spreading

The surprise attack, and Israel’s declaration of war in response to it, have left more than 1200 dead so far, and raised concerns that a potential broadening of the conflict could draw in the United States and Iran.

Israeli Defence Minister Yoav Gallant on Monday ordered a “complete siege” on the Gaza Strip as the military pounded the Palestinian territory with air strikes.

The Kremlin warned there was a “high risk” of a third party entering the war, after Washington pledged “rock solid” support for Israel and said it was moving warships closer.

“The shocking attacks in Israel have sent the price of oil soaring, as investors assess the potential for the conflict to disrupt supply in the Middle East, if other countries are drawn in,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

The Bank of Israel launched the sale of up to $30 billion in foreign currency reserves, as it sought to curb volatility in its shekel currency has tumbled to a seven-year low against the dollar.

– with AFP

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