Key Takeaways

  • Events in Israel and Gaza are first and foremost a

    human tragedy. As the situation remains highly

    volatile, we sketch four scenarios illustrating what

    could happen next.

  • A ground invasion of Gaza is the base case. Markets

    probably largely price this in.

  • In this scenario, the impact on energy markets would

    likely be limited to reduced Israeli gas supply, tighter

    international policing of Iranian oil sanctions, and the

    removal of the expected increase in Saudi oil supply.

  • There is a meaningful risk of escalation of the conflict

    to other Iran-backed actors, most obviously Hezbollah

    in Lebanon. Israel would be left fighting on two fronts

    – in Gaza and on the Israel-Lebanon border. In the

    most severe, but unlikely, escalatory scenario, Israel

    and Iran could enter outright conflict.

  • In these scenarios, OPEC spare capacity is probably

    sufficient to cover the loss of 1.4 million bpd of Iranian

    exports. But there would also be a wider risk to the

    20% of global flows that pass through the Strait of

    Hormuz. Oil prices above $140 per barrel may be a

    plausible, if unlikely, worst case.

  • Finally, there is a (unfortunately small) probability of

    de-escalation and ceasefire without a ground invasion.


    Read the full article.

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