FACTBOX: Hamas attack on Israel raises regional energy stakes

Global energy markets are closely watching the fallout from a major land and missile attack by Hamas militants from the Gaza Strip on Israel on Oct. 7, amid concerns that further escalation of the conflict will spill over into higher oil and gas prices.

"Oil demand responds primarily to prices and physical interruptions and market sentiment could react swiftly to the tragedy in the Middle East as far as oil prices are concerned," Kang Wu, global head of oil demand research at S&P Global Commodity Insights, said. "Unless oil prices spike and sustain at higher levels, global oil demand, which is heading down sequentially toward Q1 2024, will not be affected significantly. However, as an increasing number of flights in and out of Israel have been canceled, the impact can still be felt to a certain extent."

Trade flows

The potential for a major retaliation by Israel risks further escalation in the Middle East if Iran, Saudi Arabia, and other Gulf producers are pulled into the conflict. Trade flows between Israel and the Middle East have also been rising in recent years on the back of the landmark Abraham Accord in 2020 which established Israeli relations with the United Arab Emirates and Bahrain. Local reports cited a Hamas spokesperson saying that the attacks were partly an attempt to scupper the growing normalization of relations between some Arab states and Israel.

• With almost no domestic crude or condensate production, Israel has been importing around 300,000 b/d of crude this year with Turkey, Russia and Gabon and its biggest suppliers, according to tanker tracking data from S&P Commodities at Sea. Israel's oil product imports have averaged about 50,000 b/d over the same period.
• Economic cooperation between Israel and the UAE has accelerated since the signing of a peace agreement in September 2020. Israel and Jordan signed a peace agreement in 1994.
• The UAE -- OPEC's third-largest oil producer -- and Israel have struck a number of business deals after signing the Abraham Accords.
• The parties to the Abraham Accords have seen substantial growth in bilateral economic cooperation in the years since the agreement was signed. According to the Bank of Israel, Israeli imports from the UAE more than doubled, from $3.6 billion in 2019 to $8.3 billion in 2022.
• Israel has become a major gas-producing country in recent years thanks to the Tamar, Leviathan and Karish fields. In May this year, the Israeli government approved a plan for the construction of a new onshore gas pipeline to Egypt that would enable the export of an additional 6 Bcm/year of Israeli gas. The 65-km pipeline, which would run from Ramat Hovav to Nitzana on the border with Egypt, is estimated to cost around Shekel 900 million ($250 million).
• Israeli gas production totaled 21.9 Bcm last year, a new record high for the country, according to ministry data. Production was made up of output from Leviathan (11.4 Bcm), Tamar (10.2 Bcm) and Karish (0.3 Bcm).
• As well as an increase in domestic Israeli consumption to 12.7 Bcm, exports to Egypt and Jordan in 2022 also rose by 29% to 9.2 Bcm.

Related content: OPEC+ ready to take additional measures if needed after attack on Israel

Prices

Crude futures rallied late Oct. 8 as escalation could threaten production in neighboring Gulf countries were they to be pulled into the conflict. The conflict could also remove barrels from the market, as the US may enforce harsher sanctions on Iran, which has backed Hamas. The unprecedented attacks came after crude futures markets had settled sharply lower on the week, as fears over the health of the global economy dragged Brent prices down 10% since Sept. 28. Crude prices fell almost 6% on Oct 4 alone, in the biggest one-day sell-off since September 2022, ending a rally that began in June when fresh output cut pledges by Saudi Arabia and Russian pushed prices toward $100/b.

• Following the Oct. 8 open NYMEX front-month crude was trading $3.03 higher at $85.82/b, while ICE front-month Brent was up $2.90 at $87.48/b.
• Platts, a division of S&P Global Commodity Insights, assessed physical Dated Brent at $88.20/b on Oct, 6, the lowest since Aug 31, 2022.
• The Platts-assessed benchmark Dutch TTF month-ahead natural gas price on Oct. 6 was Eur38.06/MWh.
• "For oil, the conflict would have to expand to Iran," Rapidan President Bob McNally said. "That is possible but not our base case. A leading indicator of a likely expansion to Iran would be heavy attacks and fighting between Lebanese Hezbollah and Israel."

Related content: Oil markets on tenterhooks as Hamas attack stokes contagion fears

Infrastructure

No major oil or gas infrastructure runs close to the Gaza Strip or southern Israel but Israel has been developing its gas resources in the Mediterranean Sea.

• Israel has made significant progress in developing its natural gas reserves, which may be a target after missile strikes on Oct. 7.
• Chevron, which operates the major Tamar and Leviathan gas fields offshore Israel, said Oct. 7 that it will continue to work in accordance with instructions from the country's energy ministry. Energen, which operates the Karish field, which started up in October last year, said Oct. 7 that operations at Karish and its dedicated production vessel, the Energean Power, continued as normal.
• Israel has two refineries, with the biggest, the 197,000 Haifa plant, owned by the country's Bazan Group. The Paz Group-owned 110,000 b/d Ashdod refiner was the biggest buyer of Iraq's Ceyhan oil exports before they were halted in March.
• Mediterranean port city of Ashkelon, with a capacity to carry 30 million mt of crude/year.
• Eilat Oil Port accommodates tankers up to 350,000 dwt, with a storage capacity of up to 1.4 million cu m. Ashkelon Oil Port can receive tankers up to 250,000 dwt and has a storage capacity of up to 2.3 million cu m.