October 8, 2023 at 6:05 PM EDT
Updated on October 9, 2023 at 1:53 AM EDT
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Oil surged as much as 5% after the broadest and bloodiest attack on Israel in decades threatened to inflame tensions in the Middle East, the source of around a third of the world’s crude.
West Texas Intermediate traded near $86 a barrel as a war-risk premium returned to markets. The death toll on both sides following Hamas’ strikes against Israel over the weekend topped 1,100 as fighting headed into a third day, while the US said it was sending warships to the region.
The latest events in Israel don’t pose an immediate threat to oil flows, but there’s a risk the conflict could spiral into a more devastating proxy war, embroiling the US and Iran. Any retaliation against Tehran amid reports it was involved in the attacks could endanger the passage of vessels through the Strait of Hormuz, a vital conduit that Iran has previously threatened to close.
“While the worst-case scenario of a regional war has to be kept in view, it’s not my base case,” said Vandana Hari, founder of Singapore-based analysis firm Vanda Insights. “Restraint and calmer minds will prevail as there will be only losers all-round in a wider war.”