Oil to remain elevated as Middle East tensions threaten a wider conflict

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Oil to remain elevated as Middle East tensions threaten a wider conflict

In this combination of pictures created on August 25, 2024, photos taken from a position in northern ******* show Hezbollah UAVs being intercepted by the ******** air force over northern ******* on August 25, 2024. The ******** military announced early August 25, 2024 that it was conducting pre-emptive strikes in Lebanon after detecting preparations for “large-scale” attacks by the Iran-backed militant group Hezbollah. Hezbollah said it had launched more than 320 rockets at ******* overnight, targeting a string of military positions, even as *******’s military said it was carrying out pre-emptive strikes against the group. 

Jalaa Marey | Afp | Getty Images

Tensions in the Middle East and the risk of a wider conflict will keep oil prices elevated, said Vivek Dhar, mining and energy commodities strategist at the Commonwealth Bank of Australia.

Oil prices rose on Monday after *******’s Air Force struck targets in Lebanon with over 100 fighter jets before the Iran-backed group fired more than 320 rockets into *******.

U.S. West Texas Intermediate crude was up 0.75% at $75.39 a barrel, while Brent crude rose 0.67% to $79.55.

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Iran-backed Hezbollah said the strikes were in retaliation to *******’s ******** of senior commander Fuad Shukr in Beirut last month. ******* said its pre-emptive strikes were aimed at foiling a ******* ******* by the Hezbollah, Reuters reported.

“While market expectations are centered on Iran’s ******* hurting ******* without triggering a wider regional conflict, *******’s response will be equally important. And *******’s response may include an ******* on Iran’s oil supply and related infrastructure, which would put at risk 3 – 4% of global oil supply,” Dhar said.

Cedric Chehab, managing director and head of global risk at research firm BMI said the exchange of ***** on Sunday does not mean that an “all-out war” is imminent.

Speaking to CNBC’s “Squawk Box Asia,” Chehab said that “what Hezbollah wanted to do, what Iran wanted to do, was to essentially allow for deterrence. So, [to] exercise that deterrence, and they’ve done that.”

While there is a risk that the confrontation spirals out into a wider conflict, there is still room for de-escalation, he added.

Both ******* and Iranian leaders “do not want this to get out of hand and to escalate … don’t forget, Iran has a new president who’s untested, and the idea is to apply pressure on *******, but not necessarily engage in direct confrontation.”

While Dhar agreed with Chehab’s view that the events on Sunday are unlikely to be the catalyst for an all-out war in the region, he pointed out Iran has yet to retaliate against ******* following the ************** of Ismail Haniyeh, the political chief of ******, in Tehran last month.

Dhar also said the progress of Gaza truce talks will be an indicator of how Iran, Hezbollah, and ****** interpret the events over the weekend.

Early Monday, Reuters reported that

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on Sunday regarding the Gaza conflict, with Egyptian security sources telling the agency that neither ****** nor ******* agreed to proposals presented by mediators in Cairo.

Dhar added while the escalation hurts truce talks at face value, the fact that ******* managed to thwart Hezbollah “may force Iran and its proxies to concede that ******* is in a position of power, particularly with U.S. backing, making the truce talks more palatable.”

He also forecasts that Brent futures will trade between $75 and $85 a barrel in September, with more potential upside if hopes for a truce in Gaza diminish, and as an Iranian reprisal against ******* is still “on the cards.”

“More broadly, the risk of a wider conflict in the Middle East that permanently embroils Iran is an upside risk to our

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.”

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#Oil #remain #elevated #Middle #East #tensions #threaten #wider #conflict

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