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Oil prices experienced a dramatic surge on Monday, which led to a global stock market downturn and a depreciation of the Israeli shekel. This reaction is directly related to the Hamas-Israel conflict, causing significant market turbulence amid heightened concerns over an escalation in the Middle East.
Since Saturday, October 7, the ongoing Hamas-Israel conflict has disrupted the markets when they opened on Monday, intensifying concerns of an escalation in the Middle East. Oil prices soared, with Brent Crude for December delivery surging by 3.29% to reach $87.36, while American West Texas Intermediate (WTI) for November delivery rose by 3.42% to hit $85.62. Both of these crucial global oil benchmarks experienced a significant spike of over 5%, briefly reaching $89 for Brent Crude before experiencing a new decline.
This significant escalation transpires amid an already elevated oil price environment, prompted by apprehensions regarding the diminished production from Russia and Saudi Arabia.
Of note, Saudi Arabia has curtailed its production by one million barrels per day since July, a policy set to continue until year-end. This strategy is also supported by the Organization of the Petroleum Exporting Countries (OPEC).
Furthermore, oil prices had already seen a slight increase at the close in New York on Friday.
Nevertheless, it’s still too early to yield to alarm, even though the black gold market (oil market) is concerned about potential supply disruptions from Iran. It is important to note that any attacks on Iranian infrastructure or the closure of the Strait of Hormuz, which is responsible for the transit of 17 million barrels of oil per day, could lead to a sharp price surge.
Middle East tensions have already caused a considerable rise in oil prices, which are currently hovering around the $100 per barrel mark.
Economy in Times of War
According to the economist Fouad Zmokhol, the region has entered a period of wartime economics, indicating a renewed escalation in the arms race. This development is poised to have repercussions on exchange rates, the monetary and banking systems, as well as the prices of oil and metals. It will exert pressure on stock markets as well.
Zmokhol further states that the surge in oil prices is foreseeable, especially in the context of a Middle East conflict, a region of critical importance in oil production, unless OPEC decides otherwise.
He asserts that this conflict is turning the region from an era of growth and peace (thanks to peace agreements between certain Arab countries and Israel) into a wartime economy. At present, all negotiations, free trade agreements, and investments are reset to ground zero.
Zmokhol anticipates a short-term rebound in metal prices, such as gold and silver, which are currently at their lowest levels.
Shekel’s Depreciation
Furthermore, in an effort to stabilize its currency, the Bank of Israel has purchased $30 billion worth of shekels. This move aims to counteract the devaluation of the shekel, which has experienced a 2% decline against the dollar, reaching a rate of 3.94 shekels per dollar, and a 2.12% decrease against the euro, reaching 4.16 shekels.
The currency instability has favored the dollar, resulting in its highest level against the shekel since 2016. In consequence, the dollar index, a measure of the dollar’s value against a basket of currencies, has increased by 0.41%.
Global Stock Markets Roiled
Several world stock markets experienced a decline on Monday. On Wall Street, the S&P 500 index experienced a decline of 0.16%, the Nasdaq experienced a decline of 0.55%, and the Dow Jones remained steady with a gain of 0.02%. Across Europe, the Paris Stock Exchange declined by 0.23%, Frankfurt by 0.45%, and Milan by 0.22%. However, the London Stock Exchange experienced an increase of 0.34%. In Israel, the primary stock index, the TA-35 on the Tel Aviv Stock Exchange, rebounded with a 1.08% gain after a significant 6.47% loss on Sunday.
