Iran-Israel Clash: Oil Spikes, S&P Cuts Rating, Biden Backs Ally

On Tuesday, in response to Iran’s attack on Israel, the Israeli state, with indispensable help from the United States, its greatest ally, was able to intercept and bring down most of the nearly 200 missiles Iran had fired. Israel’s joint military manoeuvre with the United States was a special one whose primary goal was to destroy a massive missile strike that might have otherwise caused a lot of damage to the Israeli cities.

The news was that a couple of people were injured after one of the missiles missed its target in the Tel Aviv area. Despite that, the enemy attack was “paltry and to little effect”, as stated in President Joe Biden’s speech. Biden justified that the United States was quite instrumental in the whole course of the shooting adventure of the rockets as Israel was able to intercept the great majority of them.

Iran launched this rocket barrage at central and southern Israel primarily in response to Israeli airstrikes in southern Lebanon that killed a Hezbollah leader and an Iranian commander. The situation with Iran, Israel, and Hezbollah is getting tenser every day. However, one issue arises: why did Iran start the Israeli attack now, and what can be the larger implications of this conflict for the world economy?

S&P Downgrades Israel’s Credit Rating Amid Ongoing Conflict

As the situation intensifies, the economic repercussions of Israel become more noticeable. S&P, one of the leading financial rating companies in the world, lowered Israel’s sovereign credit rating by two points for the second time in 2022 and cited the increasing instability as one of the reasons for that. The country saw a downgrading of its credit rating from A+ to A, with a negative outlook. 

The continued fighting, particularly against Hezbollah in Lebanon, is likely to continue till 2025. The ongoing military conflict is further expected to cause some economic setbacks and impact tourism, construction, and agriculture within different areas.

S&P’s downgrade is part of the same action that Moody’s took at the beginning of this year, making stronger the message about the problem that the protracted war could create for the Israeli economy and budget. Citing a parallel decline that Moody’s had done earlier in the year, S&P did the same as a result of an escalation of the war and indicating the threat to the economy and the financial sector in Israel.

Israel’s Finance Ministry continues to have a hopeful perspective in the face of the gloomy prospects of the country’s financial strength. Due to a large amount of foreign exchange reserves and the presence of an important current account surplus, authorities have a belief that Israel’s economy is in a secure position to withstand the geopolitical crises. The Ministry, however, admits that overcoming the problem related to fiscal consolidation and tighter spending control is a condition for economic stability in the next periods.

Oil Price Spike Amid Iran-Israel Escalation

The Middle East conflict is the source of the international oil market instability. After Iran’s missile attack on Israel, the prices of oil in the market increased. Brent crude gained 2.9% to $73.56 per barrel, and WTI prices went up by 3.5% to $70.92 per barrel. Such soaring prices are due to the fact that markets are currently preparing for potential Israeli counter-strikes against Iranian oil facilities, causing possible production hindrances globally. These situations can be expected, but they appear unlikely, given the current state of global energy markets.

Oil market participants are closely monitoring the situation as Iran remains a top global oil producer, with over 3.3 million barrels per day of output. Iran exports around half of this, representing approximately 2% of the world’s total supply.

The Iran-Israel conflict directly threatens Iran’s oil supply, potentially driving up global oil prices and pressuring the world economy.

The ongoing volatility in oil prices also underscores the broader risk to energy markets posed by regional conflicts. While the immediate impact of the Iran attack on Israel today is yet to be fully realised, the potential for further escalations could have more severe implications for energy security worldwide.

OPEC+ and Oil Production Cuts: A Balancing Act Amid Surging Tensions

The development during the Iran-Israel conflict raised the price of oil with the approaching OPEC+ meeting, which will be held while the members will be talking about their current production cut plans. OPEC+ is currently adhering to a plan to cut production by 5.86 million barrels per day to stabilise the prices in a market with a supply in surplus. Nevertheless, tensions are high in the Middle East, which could cause a rethinking, particularly if the conflict disturbs big oil producers in the Middle East like Iran.

It is some of the OPEC+ member countries that have faced the problem of sticking to their oil production cuts. Among these are the states of Iran and Kazakhstan. The failure to adhere to these quotas has resulted in an agreement to make compensatory cuts for the next two months. In the run-up to the group’s future, the speculations are that OPEC+ will perhaps resume some of the cuts it made starting in December while increasing the production slightly to meet the escalating need.

Biden’s Commitment to Israel: Rising Geopolitical Risks

Joe Biden’s speech on Israel focused on the US’s undying support for its ally at this essential time. In these terms, Biden told Israel that the US will also make military arrangements to counter the missile attacks and protect citizens. Thus, his speech also drew attention to many other issues apart from that of geopolitics: the international economic and security perspectives, in particular. 

Biden’s strong support for Israel, which has always been one of the US’s most essential military engagements, clearly manifests incredible solidarity and friendship, as well as the unwavering American commitment to peace in the Middle East. As time progresses, the US President’s government must confront the dual challenge of protecting Israel while avoiding disruption to the global oil market, balancing economic stability, and maintaining diplomatic relations in the region.

The recent Iran attack on Israel has escalated tensions between the two countries, sending shockwaves far beyond the Middle East. Global oil prices have surged, financial markets fluctuate, and geopolitical dynamics shift in response to this growing conflict. The situation is escalating rapidly, and the possibility of further attacks or retaliation is a looming threat over both regional stability and global economic conditions.

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