How Israel and Iran Clash Could Impact Oil Price

After the American President, Donald Trump, decided to withdraw from the nuclear pact with Iran, Israel and Iran’s conflict have helped oil price to extend gains above $71 a barrel level. Incidentally, Iran is the third biggest producer in the OPEC block. This is undoubtedly bad news for India, and it’s policymakers as they have to prepare for another boot of increase in crude oil price.

Highest Level

For quite some time, the oil price has been active now after a number of initiatives taken by Organization of Petroleum Exporting Countries (OPEC) and others to keep prices at a competitive level. Now that there are more issues that point towards a possible disruption of supply in crude oil, the commodity price added about one percent in New York futures. This was the biggest level after November 2014. Israel said that a barrage of missiles was fired at its Golan Heights by Iranian forces following weeks of tensions. The country retaliated by striking dozens of targets inside Syria though it termed it as an oversight.

After Trump indicated that he would not renew the nuclear deal of 2015 with Iran, oil prices jumped three percent. Incidentally, the recent rally in crude oil price is more to do with the American President’s decision to re-impose sanctions on the Islamic Republic country. This apart, this has created enough geopolitical tensions among the energy-rich Middle East region. As far as investors, they are still evaluating the complete impact of the American withdrawal from the accord. According to a Bloomberg report, UBS Group believes that sanctions could reduce oil exports to Iran by half million barrels per day in the upcoming six-month period.

For its part, Saudi Arabia indicated that it is ready to come forward and make up any losses in supplies. However, Goldman Sachs Group thinks that there are enough opportunities for the crude oil price to exceed its targeted price. Another analyst, Will Yun of Hyundai Futures Corp, told media that oil has always been prone to increase on tensions and that the ongoing conflict among Israel and Iran cannot be resolved in the immediate term.

He also believes that “While prices are currently rising on Trump’s decision to reimpose sanctions on Iran, we may see some limitations to the rally as any lost volumes can be supplied by other producing nations.” The OPEC has been engaged in reducing their output since last year, and that allowed the crude oil price to reverse the falling trend.

Total Volume Increase

Meanwhile, West Texas Intermediate crude for June delivery gained 70 cents to hit $71.84 per barrel at 7.41 a.m. London time on the NYMEX. The total volume of trading also witnessed three percent more than the 100-day average volume. Similarly, Brent added 0.9 percent to $77.89 per barrel for July settlement on the ICE Futures Europe exchange.

On the Shanghai International Energy Exchange, futures for September delivery gained 2.3 percent thus maintaining its winning streak for the fourth day. This is also the biggest increasing streak in the last one-month period.

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