Mideast fighting causes price hikes in crude oil
The Israeli-Palestinian fighting has had widespread implications on the price of crude oil which has shot up to $40 a barrel since Monday. The oil rich region is stifled with brutal warfare causing changes in the crude oil market. 
The final days of 2008 experienced light trading that caused a $5 increase in the price of crude oil per barrel. This week the sweet crude delivery for February rose to above $40.02 which has been the first time it has crossed to $40 mark in New York. Nymex will however be closed for the New Year on Thursday. On the other hand retail gasoline prices were constantly declining till Monday and ended up at $1.60 per gallon.
The Israeli attacks on the symbols of Hamas power on the Gaza strip have been described as “war to the bitter end” by the Israeli defense minister. In the three days of Israeli attacks a total of 364 Palestinians have been reported dead and 1400 others wounded. The current attacks on the Gaza strip have been the worst attacks witnessed by the Palestinians in decades. The attacks were initiated by Israel in retaliation to the rocket firing by Hamas that followed after the six month truce came to an end.
Israeli missile strikes targeted the home of the Hamas premier and also managed to destroy a security compound situated inside a university building.
The hiked up oil prices were described by Phil Flynn of Alaron Trading Corp as “an emotional reaction to what was going on in Israel.” Such unusual price hikes have been experienced during previous fighting in the region.
Fylnn said “In reality, the likelihood the conflict is going to interrupt oil supply in any way; shape or form is highly unlikely, obviously, if the conflict widens, and other countries get involved directly, you might have a different situation.”
China indicated an interest in going on a mass crude buying spree in order to take advantages of the prices below $40 a barrel. China is adamant on increasing its oil reserves in order to safeguard itself against the supply shock which seem inevitable at the moment. The Chinese government has urged local companies to take advantage of the current prices and load up on oil reserves because prices are likely rise in the near future.
I think the issue, as this crisis relates to oil prices, that needs to be watched is the relationship between Hamas and Iran. Hamas is now armed with Iranian-made Fajr-3 missiles that can reach Isreal’s only nuclear reactor at Dimona.
With Iran ever closer to nuclear capabilities, Isreal will have to seriously explore striking their facilities.
Iran is the number two oil producer in the world and claims that in the event of attack they will close the Strait of Hormuz. Iran boasts 5% of total world supplies and it is estimated that 20 – 40% of the world’s oil supply passes through the Strait. As a matter of comparison, the 1979 oil crisis was created by a 4% drop in world oil production.
A strike on Iran would send oil markets into chaos. And, the relationship of Iran to the current conflict in Gaza can’t be ignored.