How could the war between Israel and Hamas raise oil prices?

The conflict between Israel and Hamas could lead to a broader conflict involving Iran through attacks on ships in the Strait of Hormuz, potentially disrupting the global energy market.

As Israel bombs the Gaza Strip in response to deadly Hamas attacks against Israel over the weekend, attention has turned to retaliation against Iran, especially after the Palestinian militant group announced it received support from Iran in the attacks, and the Israeli president placed the blame squarely on Iran. Because of these attacks.

Israeli revenge against Iran

The American magazine Foreign Policy reported on October 9, 2023, that “the details of the operation were refined during several meetings in Beirut attended by officers from the Iranian Revolutionary Guard and representatives of four Iranian-backed armed groups, including Hamas.”

Danielle Pletka, head of foreign and defense policy studies at the American Enterprise Institute, told Foreign Policy magazine that some Iranian strategic advice and support had been in plain sight for more than a year. If Iran-backed Hezbollah decides to join hostilities, Israeli retaliation against Iran will be more likely.

Oil through the Strait of Hormuz

Punishing Iran is not as fatalistic as it may seem. Over the past few years, the Islamic Republic's military has increasingly harassed international shipping in the Strait of Hormuz, which lies between Iran and Oman, and could intensify these activities at any time. This would cause problems for the world, because 30% of all oil passes through the strait.

The narrow body of water, which connects the Arabian Gulf and the Gulf of Oman, contains two shipping lanes, each two nautical miles wide. It is critical for global shipping, especially oil. In fact, the Strait is the most important oil corridor in the world. In the past four years, Iran has exploited global dependence on the Strait of Hormuz to project its power.

Sabotage attacks

Four years ago, Iran's Revolutionary Guards dramatically seized the Swedish-owned, British-flagged tanker Stena Impero as it sailed through the strait. Around the same time, four other commercial ships were damaged in “sabotage attacks” believed to have been carried out by Iran. In 2021, Iranian forces seized a South Korean-flagged tanker, and just last July, they attempted to seize two tankers. According to the US Department of Defense, in the past two years, Iran has attacked or seized about 20 commercial ships.

In August 2023, this dangerous situation prompted the Pentagon to send in about 3,000 sailors and Marines (along with an amphibious assault ship, which can carry more than two dozen aircraft, and a landing ship). The European Maritime Awareness in the Strait of Hormuz, an initiative of Germany, France, Italy and a few other European countries, has escorted 162 commercial ships this year, including 124 since June.

Escalation related to Iran

Ships that normally travel through the Strait of Hormuz will become the most visible indicator of an Iran-related escalation. If such violence is deemed likely by insurance companies, shipowners will have to reroute their vessels to alternative voyages, and this will lead to disruption and higher prices in the oil market. “I don’t think it is in Iran’s interest to close the Strait of Hormuz,” said Control Risks maritime analyst Cormac McGarry, but shipowners are very cautious.

Trying to maintain order in the Strait of Hormuz itself creates extremely volatile situations. In late September, Iranian Revolutionary Guard forces shined a laser on attack helicopter pilots assigned to US forces in the strait while the helicopter was in the air. In fact, every action taken by US forces to protect commercial ships against Iranian harassment could prompt Iranian forces to retaliate, which could make armed conflict a reality.