The surprise attack by Palestinian terrorist organization Hamas, in close cooperation with several other Palestinian militant groups, on Israel this weekend has blown up not only the prospects of any negotiated agreements between the Palestinians and Israel, but also holds a severe risk of becoming a major regional war, in which Lebanon and Iran could be engulfed. After the Hamas extremists have shocked the Israeli defense and security establishment, at the cost of more than 600 Israeli civilians being murdered, 2000+ being wounded and tens of Israelis held capture in Gaza, the main stronghold of the fundamental terrorist movement, the Israeli cabinet has declared official war on Hamas. This statement should not be taken lightly, as an Israeli declaration of war has been not be heard of since the October 1973 Arab-Israeli war. The impact of the Hamas aggression and murder of hundreds of civilians, children, women and elderly included, will be reverberating for decades to come, as the Israeli military and security establishment has been caught by surprise and unable to react quickly. The end result of this Hamas operation is clear, as the Palestinian fundamentalistic militant movement is never going to be able to withstand the military might and capability of the Israeli Defense Forces (IDF). At present over 300,000 Israeli reservists have been called to duty, while the whole country is rallying around the flag, calling for a revenge of unknown proportions. Current first operations already show the options the Israeli armed forces hold, as the Hamas and other critical infrastructure in Gaza is being destroyed.
The main focus at present, even in Israeli security and armed forces is not only linked to the role of Hamas only, but the possibility that its backers, Lebanon’s Shi’a terror movement Hezbollah and its main patron Iran, will start to open up a 2nd or even 3rd front against Israel. The fact that Israel has called upon the strongest military response in history, even during 1967 or 1973 a much lower amount of reservists were called up for duty, shows that analysts are worried about a Hezbollah-Iran connection and full-out war on the northern front. Until now, Hezbollah and Iran have kept quiet, but as media reports already have indicated Hamas operations and capabilities to strike against Israel this weekend have been coordinated by all. If these links can be made hard, and evidence is being found, there will be no doubt that Israel will engage in a pay-back scenario for both Hamas supporters. Without going into a direct military analysis of a potential Hezbollah/Iran confrontation with Israel, the latter will be assessed in another piece, it is currently more prudent to see what the ongoing moves will and can mean for regional and global energy. The first reactions in oil and gas markets is as expected. Overall oil and gas prices have jumped, showing Brent crude futures, the global benchmark, to hit the $88 per barrel mark, WTI $84.50, while European natural-gas futures leaped 14%.
Even that Israel and Gaza are not OPEC-level energy producers, or looking at Gaza not even a drop is being produced yet, the current conflict is not only in the middle of the Middle East but also in the center of the East Mediterranean, both vast energy producing and exporting regions. When looking at geography, another main significant point to discuss is its vicinity to the world’s main maritime transportation routes, such as the Suez Canal, the Red Sea, and ultimately the Mediterranean. If also looking at fall-out potential the Arabian or Persian Gulf and the Strait of Hormuz is in the cross-lines of a potential Israel-Iran confrontation. The latter needs to be kept in the cross-roads as Hamas and its Lebanese compatriot will for sure push for an East Med expansion of threats and actions.
Already, as a main precaution, the Israeli government has moved to end the production of offshore natural gas on the Tamar gas field project. At the same time, Israeli officials have indicated that they will be seeking additional energy supply to meet domestic demand. The Israeli ministry of energy has instructed American oil and gas major Chevron to shut down the field. The shutdown will not only affect Israel’s domestic gas supplies but also will have a major effect on the already struggling Egyptian gas markets and the latter’s LNG export potential. News agency Reuters reported that Israel’s minister of energy Yisrael Katz has been authorized to put a state of emergency for the energy sector in place. The offshore Tamar field can be seen from northern Gaza, as it is only 25 km away from Ashdod, one of the Israeli cities currently in the crossfire of Hamas. Israeli sources have indicated that all other fields, especially the offshore Leviathan field, which is Israel’s largest producer, still is operating as normal. The Tamar field is also a particular one, as its joint-venture partners not only include Chevron (25%), or Israeli partners (Isramco 28.75%, Tamar Petroleum 16.75% and others) but also Abu Dhabi state-owned entity Mubadala Energy (11%). Israel’s offshore gas reserves also have attracted lately Abu Dhabi National Company (ADNOC)’s interest, as the latter has offered, in combination with British energy major BP, to take a stake in NewMed Energy, an Israeli offshore East Med operator.
Egypt and Cyprus will be keeping a wary eye on the current military confrontation between Israel and Hamas, as both countries are relying not only on Israel’s offshore gas reserves to boost their own existing and future projects, but also are directly connected to Israeli gas transportation infrastructure. Cypriot offshore gas potential is not feasible to be produced if not linked to Israeli-Egyptian gas pipelines. For Egypt, a total breakdown of Israel natural gas exports will be a major blow, as the country is not only battling a financial-economic crisis but also just was planning to resume its LNG exports to Europe again. Lower gas revenues and volumes will be hitting Cairo very hard.
A still unknow but volatile factor is offshore Lebanon. The last year the future of Lebanese offshore gas looked promising, as reserves are expected to be vast and international interest, especially from Europe and USA, was growing. Even with the existing threats of Hezbollah to hit offshore gas infrastructure, the status quo was stable enough until now to get oil and gas majors aboard. Israel and Lebanon, even officially still at war, were able also to agree to a maritime border delineation, which makes the future of the Karish field (Israel) and its Lebanese counterpart Qana feasible. All of these offshore projects however can now be regarded to be under threat, not only from Hamas but also Hezbollah missile capabilities. Until now energy infrastructure has not yet been targeted, but a new front in the Hamas confrontation is expected to be possible here. In how far Hamas and others are willing to risk a possible military confrontation not only with Israel, but also its neighbors, especially Egypt, however is very doubtful.
On another level, already having an impact on global oil and gas markets currently, is the potential of a regional conflict, in which Israel also will confront Hezbollah and potentially even Iran. These two Elephants in the Room are still not a reality (09-10-2023) but developments in northern Israel and southern Lebanon however don’t bode well. Analysts are still doubting a direct coordination of the Hamas operations against Israel with the leadership of Hezbollah or Iran, but facts from the ground are increasingly showing another picture. The growing clashes on the Israeli-Lebanese border, statements coming from Hezbollah that they will open a 2nd front with Israel if the IDF enters Gaza, seem the precursors for a full-scale war between the Shi’a extremists and Israel. The fall-out of this for energy markets could be still low key, but the involvement of Iran, Syria and even Russia could up the ante to a different level.
The current estimated missile capacity of Hezbollah is immense, fully financed and delivered by Iran, and potentially Russia and others. Israel’s current military movements make it clear that the 300,000 reservists called into duty are not only meant to counter Hamas, but is a preparation for a conflict with Hezbollah. As always the Big Black Elephant is Iran. Looking at the continuation of rhetoric coming from Tehran but also Israel, a confrontation has never been closer than now. With the backing of the West, especially the USA, UK but also EU, Israel has the free-hand. No pressure can be put on Netanyahu to block direct or indirect operations against Iran, especially if the latter is proven to be behind the Hamas’ massacres of this weekend. US president Biden and the whole Washington Administration’s hands are bound, as Republicans and Democrats are in favor of Israeli retaliation. It is still not expected to see a direct Israeli military action against Tehran in the coming days, as fighting a three front war is unsustainable at present.
For oil and gas markets however the risks will increase substantially if more information is received about possible Iranian financing, weapons deliveries or direct IRGC training of Hamas. The real strength, even that this has been hit by a major intelligence failure the last couple of days, of the Israeli forces is silent, black operations in the Middle East and elsewhere. Without shedding a lot of blood of Iranians, or risking a direct military explosion in the Persian/Arabian Gulf, Israel can cripple Iran without any doubt. The Iranian regime’s lifeline is the export of crude oil and natural gas. Most of this is based on maritime transportation, almost all concentrated in and around the Persian Gulf or Strait of Hormuz. Surgical stealth operations could easily sink all Iranian or Iranian-operated vessels shipping crude to Asia. At the same time, Israel’s connections with the Kurdish forces in Iraq and Iran are sufficient to do the same to Iran’s Central Asian pipeline connections.
Removing the current Iranian crude oil and petroleum products volumes from the market will not only cripple the extremists in Tehran, especially the regime’s pillar called IRGC, but also push oil markets into a crisis. A crude oil and natural gas price spike will easily be breaking the $100 per barrel level, but not be regarded sustainable as OPEC+ oil Kingpins Saudi Arabia, UAE and even Iran’s supporter Moscow, will be filling the gap very soon. Still, the latter only will work in a ceterus paribus situation. Iran’s reactions can be vast and without remorse. Potential engagement via the IRGC-Hezbollah connections with Israel are to be expected. Hardliners in Tehran maybe even will be willing to confront it’s still arch-enemy Saudi Arabia. The ongoing thaw is seen by some as a strong cooperation, but the iceberg of mistrust or hate has not yet started to melt even.
Iran’s proxies are also not only in Lebanon, Gaza or Syria. For international oil and gas markets Yemen, Sudan or even potentially Horn of Africa or Caribbean are also at risks. The world’s largest energy routes are all in range of Tehran’s still not constrained missile production, while Iran’s drone capacity has been improved exponentially. The risks of the unexpected Hamas operation are much higher than most understand at present. All eyes are at the horrible scenes of the massacre of Jewish civilians, kids, mothers and elderly, or for some the plumes of Israeli surgical strikes on Hamas infrastructure in Gaza, while the real simmering confrontation is building up in other areas, where media is still in the blind or doesn’t want to talk about
Energy markets are at risk, but the impact is still unclear as there are too many moving pieces. More will be able to be assessed in the coming days. The current fog hiding military preparations in the whole region is too thick to foresee any new surprise. What most players of the old power game in MENA however are miscalculating however is that Israel currently is assessing its own 9/11 or Pearl Harbor. Until now the IDF always have put operations on levels to contain casualties and possible repercussions. The overall feeling however at present is not only of rallying around the Star of David, but to remove all threats for the next decades. No Israeli politician or general is willing to be constrained by international pressure or so-called legal issues. The region already was changing favorably for Israel, as even Saudi Arabia is considering a thaw, maybe quicker than most expect. Egypt’s leadership has no love for Hamas, or even the PLA side, while Gulf Arab countries, except Qatar, are willing to close their eyes too. Iran’s position in it all officially is not yet being discussed, but a weakened Iranian military position and lower oil and gas power is to the liking of most. Israeli actions against Iranian military and energy infrastructure will be not supported, but air and maritime spaces will be open without any doubt.
REFERENCES:
https://missilethreat.csis.org/country/iran/.
https://www.reuters.com/markets/commodities/israel-shuts-down-offshore-tamar-gas-field-output-2023-10-09/
https://www.spglobal.com/commodityinsights/en/ci/research-analysis/eastern-mediterranean-gas.html
https://www.spglobal.com/commodityinsights/en/ci/research-analysis/eastern-mediterranean-gas.html
https://www.theguardian.com/world/2022/sep/20/israel-risks-crossing-hezbollah-red-line-as-it-prepares-to-connect-to-disputed-gas-field
https://www.aljazeera.com/news/2022/11/15/israel-signs-agreement-on-gas-field-shared-with-lebanon
https://missilethreat.csis.org/country/hezbollahs-rocket-arsenal/
https://missilethreat.csis.org/country/iran/
https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/091423-bidens-iran-policy-purported-shadow-deals-garner-blowback-from-lawmakers; https://anasalhajjieoa.substack.com/p/impact-of-israel-hamas-conflict-on?utm_source=post-email-title&publication_id=1222998&post_id=137804641&utm_campaign=email-post-title&isFreemail=false&r=1vkr3y&utm_medium=email
