Crude prices jumped by about 4% following the Hamas attack, which is a fairly typical reaction as markets apply a “fear premium” premised broadly on the perception of higher risk.
That’s not a huge jump and the price hike could quickly fade if the oil market continues to function normally.
Two geopolitical changes could affect oil supplies in 2024, however — which means they have implications for the US presidential election. The first involves Saudi oil supplies. Before Hamas attacked Israel on Oct. 7, the Biden administration had been trying to broker a deal in which Saudi Arabia and Israel would establish formal, normalized relations for the first time ever. Each nation would make concessions to the other, and the United States would do its part by offering Saudi Arabia defense guarantees that make a deal with Israel possible.
Some analysts think an unstated part of the deal would be Saudi willingness to pump more oil in 2024, to help keep US gasoline prices down as Biden is running for reelection. But the war may now scuttle the Israeli-Saudi deal and with it the prospects of a boost in Saudi oil production in 2024.
“We see more support for tighter oil supply and higher oil prices over the longer term as diplomatic progress on a security deal with Saudi Arabia is likely to face significant headwinds during a period of heightened military activity in the Middle East,” Raymond James analysts wrote in an Oct. 8 report. “Speculation that Saudi Arabia could ease its oil production cuts to build goodwill for a security deal with the US had ramped up, but the potential for this weekend’s events to spark a broader regional conflict will likely place any further progress on hold.”
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