An Israeli Iron Dome anti-missile system intercepts a rocket as seen from Ashkelon, Israel on October 1, 2024
Amir Cohen | Reuters
The Israeli government has vowed to respond harshly to Iran's unprecedented missile attack on Tel Aviv, rattling the Middle East and amid growing fears of an all-out war between the two bitter foes.
Iran launched some 180 ballistic missiles at multiple locations in Israel on Tuesday night, an attack that Tehran said was in response to Israel's assassination of Hezbollah leader Hassan Nasrallah a week ago.
Israeli authorities said there were no casualties in the attack and that most of the attacks were blocked. But the incident marks a turning point in a series of tit-for-tat escalations as Tehran appears determined to re-establish deterrence and prove to Israel that it can and will strike at a time of its choosing.
Markets are now bracing for what could happen if Israel retaliates against Iran. Defense stocks are rising, and long-sluggish oil prices are likely to rise as well, as industry observers now see real threats to crude supplies.
As much as 4% of the world's oil supply is at risk as the oil infrastructure in Iran, one of OPEC's largest crude producers, could be targeted by Israel.
After the missile attack, oil prices rose by more than 5% in the previous trading day, and then the increase gradually narrowed to 2.5%. At 10:30 a.m. in London, the global benchmark Brent crude oil contract for December delivery was trading at $75.37 a barrel, while front-month U.S. West Texas Intermediate crude November futures rose 2.68% to $71.70 a barrel.
“I think the focus may be on Israel, but the focus should really be on Iran and whether there will be an attack on regional infrastructure. That's really the event we're looking for and it could determine a more dangerous path.” RBC Wealth Frederique Carrier, the manager's head of investment strategy for the British Isles and Asia, told CNBC's Capital Connection on Wednesday.
“We know, looking at the conduct of wars since the 1940s, those that caused the oil crisis (and) the long-term rise in oil prices, that there is a long-term impact on the stock market.”
She added that so far there was “no indication” of this.
Oil infrastructure 'a tempting target for Israel'
Lewis Sage-Passant, adjunct professor of intelligence at Sciences Po in Paris, said energy markets are nervous and investors are watching Israel's next move.
“Iran’s reliance on a handful of ‘chokehold’ export terminals, such as Hark Island, would make it an attractive target for Israel,” Sage-Passant said. “Energy sector teams appear to be wary of tit-for-tat targeting of regional infrastructure. The attacks are escalating and even though they are not directly targeted, much of the world's oil infrastructure is in the flight path of these missiles, so naturally everyone is very nervous.”
After Tuesday's attack, U.S. national security adviser Jake Sullivan warned that Iran would face serious consequences and said the United States would firmly support Israel. But Roger Zuckerheim, former deputy assistant secretary of defense and director of the Ronald Reagan Institute in Washington, said Washington's efforts to de-escalate and prevent regional conflicts have clearly failed.
The Iranian attack and Israel's subsequent response “could have an impact on oil, energy markets, certainly the aviation industry, and I think certainly the defense sector…investments in missile defense and munitions, and the companies that manufacture and produce these systems, certainly will be affected.
“The Israelis will now not only respond, but will take the necessary steps to restore deterrence,” Zakheim added.
Deterrence, or all-out war?
The question remains whether a strong Israeli response will restore deterrence or trigger further Iranian escalation and plunge the two countries into all-out war. “Unless the Israeli regime decides to invite further retaliation, our operations are over,” Iranian Foreign Minister Abbas Araghchi said in a statement after the country's missile salvo. “In this case, our response will be even more severe. Strong and powerful.
Sara Vakhshouri, founder and president of SVB, said that in addition to geographical bottlenecks in the oil market, “a large number of facilities on both the Iranian side and the Israeli side could be targeted for critical infrastructure,” the energy company told CNBC's Capital Connection on Wednesday.
“These infrastructures are all interconnected,” she said, stressing that Iran’s sheer size means “it’s impossible to somehow secure all of it.”
Some market observers warn that oil prices could hit $100 a barrel.
Vakhshuri expressed doubts about such predictions, noting that geopolitical events tend to only temporarily affect oil prices. The extent and duration of any market impact “depends on where the damage is and how much oil will be removed from the market,” she said.
“There's no question that prices are going to trend upward. (But) the other thing is that the market is looking at the huge uncertainty on both sides…(both) on the demand side and on the geopolitical side.”
A longer-term issue supporting oil prices is the condition of broader global demand. Brent hit a 33-month low in mid-September and had been hovering around $70 a barrel until Iran launched missile strikes on Israel amid slowing global demand and ample supply, especially from non-OPEC+ producers. adequate.
“So these are very interesting times,” Vahshuri said. “Prices have remained resilient amid concerns about low demand, but geopolitical factors are also real. Either side could really drive the market, and just in the past few days we’ve seen how prices can rise or fall depending on how sentiment is shaken. trigger.