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The ongoing Gaza-Israel war is causing concerns in the financial markets, particularly impacting ASX oil and gas stocks, warns AMP Head of Investment Strategy and Economics, Dr Shane Oliver. According to Dr Oliver, the conflict poses upside risks to oil prices, which have already seen a rise in WTI crude oil (up 2.4% to US$88.72 a barrel) and Brent crude oil (up 1.9% to US$91.60 a barrel).
Dr Oliver emphasizes that if Iran becomes directly involved in supporting Hamas, there could be a significant surge in oil prices, potentially exceeding $150 per barrel. This scenario, he notes, would not only contribute to inflation but also keep interest rates higher for a longer period, adding to the risk of recession.
The AMP chief economist points out that the conflict's impact on oil prices is contingent on whether major oil producers in the Middle East are affected. While Israel, Lebanon, and Syria are not major oil producers, the involvement of Iran, which backs groups like Hamas and Hezbollah, could pose a substantial risk. Dr Oliver's base case, with a 70% probability, is that the conflict remains limited to Israel and Gaza, with some involvement from Hezbollah in Lebanon and possibly other groups in Syria, but no direct Iran involvement.
He notes that if Iran stays out of the conflict and a major supply disruption is avoided, the impact on ASX shares in the next 12 months should be minimal. However, if Iran does become directly involved, the risk increases significantly, with the potential for oil prices to surpass $150 per barrel.
Dr Oliver underscores the importance of monitoring the situation, especially considering Iran's backing of Hamas, its nuclear weapons capabilities, and the potential for Israel and the U.S. to take action against Iran. Even if Iran does not directly enter the conflict, the risk of a further cut in Russian oil production adds to the potential for a rise in oil prices.
In the ASX 200 energy shares landscape, Woodside Energy Group Ltd (ASX:WDS) is standing out, with a 10% increase in sales volume in the third quarter and revenue reaching $3.26 billion, despite a lower average realized oil price of $60.2/boe.
Investors in ASX oil and gas stocks are advised to closely monitor geopolitical developments, as any escalation involving Iran could have a profound impact on oil prices and, consequently, the performance of related stocks on the ASX.
