Israeli Minister Delays U.S. Visit: Why Is Oil Dropping Amid Middle East Tensions?

Insights - The Pentagon announced that Israel's Defense Minister postponed his October 9 U.S. visit, which was seen as a key opportunity for the U.S. and Israel to formulate a strategy to counter Iran. Israeli officials said Prime Minister Netanyahu opposed the visit, preferring to first convene Israel's security cabinet to agree on Iran strategies and speak with President Biden.

President Biden had previously urged Israel not to attack Iran's nuclear or oil infrastructure, fearing it could escalate conflict and raise global energy prices.

Oil Prices Fall Despite No Fundamental Change

However, international oil prices saw a significant drop after a series of gains in recent weeks. 

Svetlana Tretyakova, a senior oil market analyst at Rystad Energy, suggested that the price decline could be a result of profit-taking after two weeks of gains, rather than solely due to changes in market fundamentals. 

Tamas Varga, an analyst at oil brokerage PVM, noted this week that oil prices had been rising for an extended period primarily based on perceived risks, rather than actual supply disruptions.

The Strait of Hormuz Remains a Key Focus

The Strait of Hormuz, between Iran and Oman, is a vital route for Middle Eastern oil, handling 21 million barrels per day, or 21% of global oil trade in 2022, according to the EIA.

Energy analysts warn that a blockade or disruption could push oil prices above $100 per barrel. Alan Gelder of Wood Mackenzie highlighted that 20% of global crude exports come from countries like Saudi Arabia, Kuwait, and Iraq, which also hold most of the world’s spare oil capacity. He noted that the market is pricing in potential impacts on Iran's infrastructure, not the worst-case scenario of a Strait closure.

MST Financial's Saul Kavonic added that any disruption in the Strait could sharply raise oil prices.

Saul Kavonic explained that an attack on Iran's oil facilities could reduce global supply by approximately 3%, potentially pushing oil prices to near or even above $100 per barrel.