Oil Prices Were Going Down Again. Then War Started in the Middle East.

HOUSTON — After a surge this summer when oil prices approached $100 a barrel, the cost of crude was tumbling again. Now a Middle East war has sent it right back up.

Traders drove up the price of oil as much as 5% as fighting escalated between Israel and Hamas after the terrorist group attacked the Jewish state from the Gaza Strip over the weekend. Prices stabilized Monday morning, but the global Brent oil benchmark appeared to be grinding back up toward $90 a barrel in the afternoon.

No oil is produced in the Gaza area, and Israel produces only a small amount of oil for its own use, energy analysts noted. But experts warned that prices could go higher if the fighting were to spread around the region, especially if Iran becomes actively involved in the war.

“Market sentiment could react swiftly to the tragedy in the Middle East as far as oil prices are concerned,” said Kang Wu, an energy analyst at S&P Global Commodity Insights.

Israeli retaliation to the Hamas attacks, including an invasion of the Gaza Strip, could pull Iran and other Persian Gulf countries into the conflict. Oil traders were waiting to see if Israel would explicitly blame Iran for the weekend attacks, a sign that an escalation could be imminent. Traders are worried that Iran might then seek to interrupt oil tanker traffic in the Strait of Hormuz, the primary passage for Gulf oil to the rest of the world.

Energy prices had been slumping over the past week in part because of recent unexpectedly strong growth in the output of oil from several countries, including some in OPEC, the oil cartel. Two main reasons were that economic growth in China remained weak, keeping demand muted, and that high interest rates had spurred concerns over growth in Europe and the United States.

The average price for 1 gallon of regular gasoline in the United States on Monday was $3.70, 11 cents below a week ago, according to the AAA motor club. A year ago, gasoline sold for $3.91 a gallon.

But that relief for drivers is now in jeopardy following a stunning geopolitical event, much as Russia’s invasion of Ukraine sent oil and natural gas prices skyward last year.

This article originally appeared in <a href="https://www.nytimes.com/2023/10/09/business/israel-gaza-oil-prices.html">The New York Times</a>.