The war that has broken out in Israel could have long-term effects around the world. While Israel has very limited oil production—close to zero—the impact of the Hamas attack may result in lower global oil supply. Either increased sanction monitoring on Iran or a contagion of the battle from Israel to include Iran given Iran’s historic sponsoring of Hamas, may all have an impact on global supply.

How do you see the unrest in the Middle East (Israeli/Hamas war) affecting crude prices longer term?

The longer-term effect is most likely more bullish than bearish to prices, as it’s just a matter of time until it reaches into Middle East oil producing areas. All eyes will be watching Israel’s progress and any intentions they may have toward Iran. Global exports from Iran have been growing (up nearly 1 MMbbl/d from levels a year ago), and if further sanctions are implemented, world supplies could tighten further.

As of mid-October, Russia’s fuel and exports are estimated to be near five-month lows. Also keep in mind, current U.S. crude and diesel inventories are well below the five-year average going into mid-October with winter demand around the corner. The Cushing, Oklahoma, hub and the Strategic Petroleum Reserve storage are also at concerning lows. Again, like I have mentioned before, $90+/bbl for an extended period is too high and damages global economies and $50/bbl is too low and causes destruction to the U.S. energy infrastructure.

What could cause prices to move lower even if the Israeli/Hamas war escalates?

A few subdued facts for crude prices are that, given the latest cuts in OPEC and Russian production, the excess spare capacity could come to the world market from OPEC if needed on further war escalations. U.S. crude production surged to a new record high in the third quarter.

We are also entering maintenance season for major refineries that have put off major projects. When refineries are idled, near-term demand for crude lessens and crude storage can see some larger builds. Seasonal driving demand for fuel also slacks through most of October and November. Higher global interest rates can also be a longer-term headwind for demand. Still a lot of “what ifs” remain with unrest in the Middle East, and producers should be proactive hedgers on price strength.

Our team has been tracking trends around deglobalization over the past few years and the movement of the world from a unipolar power, focused in the U.S., to a multi-polar world. While countries like China and Russia have emerged as formidable competitors that both appear willing to to assert their interests using military might, this conflict in the Middle East accelerates the era of deglobalization as countries begin to pick sides.

In addition, a reassessment of the U.S. supply chain for key goods and services is likely to result in some movement of production from low-cost countries to higher-cost countries.