.webp "Oil Prices Rally as Israel Enters Conflict with Hamas")
Oil prices experienced a significant surge, while global stock markets faced a downturn as Israel officially declared war on Hamas, triggering a wave of uncertainty among investors.
Despite Israel not being a major oil-producing nation, the escalating tensions in the oil-rich Middle East rattled markets that had been witnessing a recent sell-off of oil commodities. Factors such as inflation concerns, fears of a global economic downturn, and a correction in oil prices, which had been on a steady rise in recent months, contributed to the decline in US oil prices from approximately $95 per barrel in late September to just above $80 per barrel last week.
However, Monday brought a notable turnaround, with US oil prices registering a 4% increase, surpassing the $86 mark. Simultaneously, Brent crude, the global benchmark, also saw an uptick of nearly 4%, trading at almost $88 per barrel.
The trigger for this market upheaval was Israel's formal declaration of war on Hamas, which came in response to a deadly and unexpected assault launched by the Islamist militant group on Saturday. The conflict has resulted in a tragic toll, with more than 700 casualties reported in Israel and over 400 Palestinians losing their lives.
One of the concerns arising from this conflict is the possibility of protracted and intense retaliatory strikes on Gaza, which could potentially draw Iran into the conflict. Such a development could disrupt the flow of energy resources in the region, a prospect that has left markets on edge.
Furthermore, the Israeli shekel weakened significantly, reaching a rate of 3.92 to the US dollar, its lowest level since 2016. Responding to this, Israel's central bank announced plans to sell up to $30 billion worth of foreign currencies with the aim of stabilizing the currency and ensuring the smooth functioning of financial markets. An additional $15 billion of support would be provided if necessary, with the central bank closely monitoring developments and ready to deploy its available tools as needed.
Equity markets also felt the impact of the conflict. US stocks, which had seen a surge on Friday following a surprisingly robust American job market report, experienced a dip on Monday. The Dow decreased by 18 points, or 0.05%, while the S&P 500 and Nasdaq Composite declined by 0.4% and 0.9%, respectively.
Global investors are apprehensive that the Israel-Hamas conflict might spill over into the wider region, potentially jeopardizing the fragile global economic recovery. European stock markets initially reacted with a decline, but by 8:07 a.m. ET, they had stabilized somewhat. France's CAC 40 index was down 0.6%, Germany's DAX index dipped 0.7%, and London's FTSE 100 posted a marginal increase of 0.04%, driven by gains in the shares of oil companies.
In Asia, the initial reaction among investors was mixed. Mainland China's Shanghai Composite slipped by 0.4% after reopening following a holiday week, while Australia's S&P/ASX 200 ended 0.2% higher. Hong Kong's Hang Seng index increased by 0.2% after a morning suspension due to a typhoon, while markets in Japan and South Korea were closed for holidays.
The prevailing question in the minds of market participants is whether the conflict will remain contained or escalate to involve other regions, notably Saudi Arabia. Analysts at ANZ pointed out that initially, markets seem to assume that the situation will remain limited in scope, duration, and oil price implications. However, higher volatility in the markets is expected as the situation unfolds.
- source: https://edition.cnn.com/2023/10/08/investing/global-markets-israel-hamas-hnk-intl/index.html