October 2023 / INVESTMENT INSIGHTS
The Impact of the Israel‑Hamas War on Oil Prices
Amid near-term pressures, secular drivers will likely remain intact.
The Israel-Hamas war could have broader implications beyond the Middle East. The situation is highly dynamic, and the human cost of the conflict will rightly remain the primary concern. Our thoughts are with those impacted by this tragedy, and we hope that the conflict is resolved soon.
The immediate impact on global financial markets has been relatively muted. The primary risk to the global economy is through oil markets, particularly if the conflict spreads to other parts of the region. Higher oil prices would hit consumer spending power and could potentially fuel inflation—making decisions more complicated for central banks that had been planning to slow or pause monetary tightening measures. An extended period of elevated energy prices could, for example, persuade some central banks to keep rates higher for longer.
Risks Could Remain Elevated
In the short term, the price of oil may remain elevated as markets assess the impact to commodity supply chains. While the direct oil market risk may not seem as acute since Israel produces a negligible amount of the world’s oil supplies, the indirect oil market risk from a supply perspective is that Iran may become implicated in the war, resulting in an aggressive reinforcement of sanctions on Iranian oil exports. This could push prices higher, particularly given the market is already tight.
While OPEC has the capacity to offset lost Iranian exports, it is not entirely clear it would do so given the complex geopolitical dynamics in the Middle East.
We are also mindful that the conflict could impact natural gas prices in the near term. Israel has indicated its intent to shut down natural gas fields, and as the county sources about 1.5% of global supplies, the curtailment could have an impact on markets beyond the region. Price pressures could impact diesel and fertilizer prices, which we will be watching closely in the period ahead.
History shows that these conflicts often impact commodity prices over shorter time frames but do not typically overwhelm the long-term drivers underpinning commodity cycles. Productivity and cost curves remain the key drivers of secular bull and bear markets in commodities, and we expect that to remain the case.
We continue to monitor the situation to understand the immediate and longer-term impacts on global markets and our investment portfolios.
This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.
The material does not constitute a distribution, an offer, an invitation, a personal or general recommendation or solicitation to sell or buy any securities in any jurisdiction or to conduct any particular investment activity. The material has not been reviewed by any regulatory authority in any jurisdiction.
Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources' accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date noted on the material and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.
The material is not intended for use by persons in jurisdictions which prohibit or restrict the distribution of the material and in certain countries the material is provided upon specific request.
It is not intended for distribution to retail investors in any jurisdiction.