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Israel: new war, oil and geopolitics

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A surprise multi-pronged attack on Israel by the Palestinian group Hamas would likely result in massive military retaliation on Gaza and possibly a wider conflagration with repercussions beyond the Middle East. writes Bloomberg.

This surge in violence – involving infiltrations, the capture of soldiers and civilians and thousands of rockets – comes at a time of enormous diplomatic sensitivity and a moment of weakness for Israel that analysts warn its enemies may seek to exploit.

The country is in negotiations with the United States and Saudi Arabia over a complex three-way deal in which Washington would offer security guarantees to Riyadh. The Saudis, for their part, would normalize their relations with Israel. Israel has also discussed with Turkey and other countries gas exports to Europe as well as trade corridors from Asia.

Internally, Israel is immersed in political turmoil which makes it vulnerable. Last April, the nation found itself briefly engaged on three fronts simultaneously – Gaza, Lebanon and Syria – after rocket fire came from all three. Part of the trigger was the entry of Israeli Jews into the grounds of the Al Aqsa Mosque in Jerusalem. Last week this also happened.

“I cannot rule out a multi-arena war that would pose a very, very serious threat to the State of Israel,” Giora Eiland, a former national security adviser to Israel, said in a press briefing with officials. journalists. He added, however, that Israel prefers to fight one enemy at a time and would not be quick to open another front.

Prime Minister Benjamin Netanyahu, at the center of weekly anti-government protests, will likely experience a moment of national unity after the attack, leading opposition politicians to back a strong response. The demonstration which was to take place on Saturday evening was canceled.

“Citizens of Israel, we are at war,” Netanyahu said in a videotaped statement. “Not in an operation. No back and forth. At war.” He added: “The enemy will pay a price he has never known.”

The last major Israeli military operation against Hamas in Gaza dates back to 2014. It lasted seven weeks and killed more than 2,000 Palestinians as well as dozens of Israelis.

Part of the Saudi deal is expected to involve Israeli concessions in the West Bank to strengthen the Palestinian Authority and increase the possibility of an independent Palestinian state. This arrangement would be threatened if the latest fighting led Israel to expand its operations in the West Bank.

Saudi Arabia wants guarantees of protection from the United States, in part because of its own concerns about Iran. If Iran is found to play a key role in Saturday’s attack on Israel, it could affect those negotiations.

Adding to pressure on Netanyahu, the attack is widely described as the worst Israeli defense failure since Syria and Egypt launched an unexpected war against the country 50 years ago.

“This appears to be a colossal intelligence failure on the part of the Israeli establishment,” said Jonathan Conricus, a former Israeli military spokesman. “What we see indicates lengthy and careful planning that should have been repeated. Very difficult questions are being asked and difficult answers will have to be given.

The question now is how the confrontation will escalate, said Miri Eisen, a retired colonel who worked in military intelligence and now heads a counterterrorism institute at Reichman University in Israel . Whether it leads to a bigger war “is the $64,000 question,” she said. “If Iran is involved in this matter, can we now anticipate the next step?

For oil, it’s not 1973 anymore – but it could still go wrong, notes Bloomberg in another comment. Crude prices are expected to rise after Hamas’ surprise attack on Israel, but there is still plenty of capacity to exploit.

History doesn’t repeat itself, but it often rhymes. On the eve of the 50th anniversary of the first global oil crisis, the parallels between October 2023 and October 1973 are easy to draw: a surprise attack on Israel and rising oil prices. But the resemblance ends there.

The situation is fluid and for the oil market it all depends on how Israel responds to Hamas, which launched the attack, and Iran, which usually pulls the strings for the Palestinian group. We can nevertheless draw some provisional conclusions:

1) The crisis is not a repeat of that of October 1973. Arab countries are not attacking Israel in unison. Egypt, Jordan, Syria, Saudi Arabia and the rest of the Arab world are watching events from the sidelines, without influencing them.

2) The oil market itself exhibits none of the characteristics of pre-October 1973. At the time, demand for oil was soaring and the world had exhausted all its spare production capacity. Today, consumption growth has moderated and is expected to slow further as electric vehicles become a reality. Additionally, Saudi Arabia and the UAE have significant spare capacity that they use to hold down prices – if they choose.

3) Just as important, today OPEC countries are not trying to raise prices beyond a few extra dollars. Riyadh would be happy with oil prices rising another 10 to 20 percent, to just over $100 a barrel from the current $85, rather than pushing them up more than 100 percent to $200 a barrel. Just before the October 1973 oil embargo, OPEC countries unilaterally increased official oil prices by approximately 70%. Even if the embargo is the most significant element of the crisis, the rise in prices has been just as crucial.

4) The fallout could still impact oil markets in 2023 and 2024. The most immediate impact could come if Israel concludes that Hamas acted on instructions from Tehran. In this scenario, oil prices could rise significantly. In 2019, Iran demonstrated, through Yemeni proxies, that it was capable of destroying a significant portion of Saudi oil production capacity. This could have the same effect as retaliation if it came under attack from Israel or the United States.

5) Even if Israel does not immediately respond to Iran, the repercussions will likely affect Iranian oil production. Since the end of 2022, Washington has turned a blind eye to the increase in Iranian oil exports, circumventing American sanctions. The priority in Washington was informal detente with Tehran. As a result, Iranian oil production has jumped by almost 700,000 barrels per day this year – the second largest source of additional supply in 2023, behind US shale. It is now likely that the White House will implement the sanctions. That could be enough to push oil prices to $100 a barrel or beyond.

6) Russia will benefit from any oil crisis in the Middle East. If Washington applies sanctions against Iran, it could create space for Russia’s own sanctioned barrels to gain market share and fetch higher prices. One of the reasons the White House turned a blind eye to Iranian oil exports is that it hurt Russia. In turn, Venezuela could also benefit, with the White House easing sanctions to ease market pressure.

7) The Saudi-Israeli diplomatic deal, which many had predicted for early to mid-2024, is a casualty. Although Riyadh is likely furious with Hamas, it is difficult to imagine how Crown Prince Mohammed bin Salman could get the deal accepted domestically. This, in turn, eliminates the possibility of Saudi Arabia pumping more oil to facilitate passage of the deal in Washington. The other casualty of the Hamas-Israel war is the Saudi-Iranian rapprochement, which itself has been another bearish element for oil.

8) Finally, an essential difference compared to 1973, Washington can exploit its strategic oil reserve to limit the impact on gasoline prices – and on President Joe Biden’s popularity rating. If oil prices soar due to tensions in the Middle East, the White House will certainly call on the SPR. Even though they are at their lowest level in 40 years, the reserves still have enough oil to face another crisis.

The India-Middle East-Europe Economic Corridor (IMEC) via Dubai-Saudi Arabia-Israel (map), launched last month on the sidelines of the G20 summit in New Delhi, is effectively dead, writes the Indian ‘Business Today’.

Hamas’ attack on Israel and Tel Aviv’s subsequent response may reverse some of the ambitious initiatives in the Middle East. The United States is pushing for the normalization of relations between Saudi Arabia and Israel, as well as the creation of an economic corridor between India and Europe that would pass through the Middle East. The fate of these two now hangs in the balance as Tel Aviv declares war and bombs the Gaza Strip following the deadliest attack in years by the militant organization Hamas against Israel.

The India-Middle East-Europe Economic Corridor (IMEC) was launched last month on the sidelines of the G20 summit in New Delhi. The IMEC will comprise two distinct corridors, the Eastern Corridor connecting India to the Persian Gulf and the Northern Corridor connecting the Persian Gulf to Europe. It will include a railway that will provide a cross-border ship-to-rail transit network, allowing goods and services to transit to, from and between India, the United Arab Emirates, Saudi Arabia, Jordan, Israel and the ‘Europe.

“Saudi Arabia, Iran and Qatar have expressed their support for Hamas. American plans for the IMEC corridor or peace between Saudi Arabia and Israel do not look promising.”

So, the India-Middle East Economic Corridor is effectively dead. The idea of ​​seamlessly connecting Gulf Arab countries to Israel via Jordan has always been a US-Israeli fantasy, notes an Indian website.

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