As the conflict between Israel and the Islamic group Hamas escalates, Israel is taking safety precautions that are producing real-time ramifications for the global oil market and liquid natural gas (LNG) exports. The surprise attack on Israel resulted in a near-immediate shutdown of growing Israeli oil extraction facilities.
The global markets are already feeling the economic effects of this conflict, though the full ramifications to the oil and LNG markets are yet to be seen. The Israeli military has called up a staggering 300,000 reservists to impose a blockade of the Gaza Strip, indicating this conflict will only escalate further.
Israel Shuts Down Key Gas Field
Citing safety concerns, Israel shut down the Tamar field in the Mediterranean Sea as the fighting continues between Israel and Islamic forces. The Tamar gas field, which the Chevron Corporation runs, has been one of the largest Israeli sources of natural gas for the last two decades. Prior to the October 7th attack, Israel’s offshore oil facilities had been expanding and exploring new horizons for Middle Eastern oil production. That expansion has been put on hold as the Israeli-Hamas conflict continues.
While there are no oil production facilities in southern Israel, along the northern coast, the Middle Eastern nation boasts two massive reserves, Tamar and Leviathan. Between these two fields, Israel is able to provide ample supply to its citizens, as well as export to the nearby nations of Egypt and Jordan. Israel is actively expanding these two areas with hopes of becoming a major contender for Middle Eastern gas production.
For the time being, the shutdown of the Tamar field could hinder Israel’s long-term plans to become a significant oil supplier in the Middle East. Within the last year, the Tamar gas field was a prominent producer of Israeli oil, accounting for nearly 50% of the nation’s gas production. Amidst in the past year’s boom in its oil fields, the Israeli government pledged to export more natural gas to Egypt, strengthening the bond between the neighboring nations. However, the current conflict could present challenging circumstances for Israel’s gas exportation to Egypt.
Furthermore, Israel shut down the Ashkelon oil terminal as a safety precaution due to the violent attacks by Hamas. The Ashkelon port, which is run by Israel’s state-owned Europe Asia pipeline company (EAPC), is located a mere six miles from the Gaza Strip, so it is a pivotal port for the Israeli economy. Naturally, with this port being so near the potential conflict areas, Israel is taking necessary precautions to protect and defend it from the carnage. Currently, Israel’s other ports, Haifa and Ashdod, remain operational. However, further shutdowns will likely be considered as the rampaging escalates.
Egypt’s LNG Exports Diminished
One of the natural side effects of Israel shutting down the Tamar gas field is the diminished exportation of LNG to buyers like Egypt. An anonymous source revealed that Egypt’s importation of Israeli gas was reduced to approximately 650 million cubic feet per day. This reduction amounts to nearly 20% of the North African nation’s importation of Israeli gas. This diminishing importation of Israeli gas puts Egypt in a bind for exporting LNG to Europe and other areas.
Following Russia’s invasion of Ukraine, several European nations sought alternatives to Russian oil pipelines. Egypt became a viable option for European buyers, significantly boosting the Egyptian economy and LNG exports. Unfortunately, this newly kindled interest in Egyptian LNG exports could be hampered by the conflict in the Gaza Strip.
Israeli law requires oil and gas production to provide for Israel’s needs before exporting to other countries. In other words, should the conflict continue, and Israel shut down operations in Leviathan, it could prevent Israel from producing enough surplus gas to export to Egypt. If Leviathan continues to operate and export as usual, officials say Israel should have more than enough resources to continue supplying Israeli gas needs as well as exporting additional stores.
Egypt Waits on Shipments
At least one shipment of LNG has been delayed due to the conflict. LNG vessel Dapeng Princess was expected to talk on October 7th but has yet to complete its delivery. This vessel is currently waiting outside the terminal, while another one is expected to arrive this week. As the world reacts to Hamas’s surprise attack, the cascading ripple effects are already taking place.
If the reduction in Israeli exported gas continues, Jordan and Egypt could see a significant downturn in LNG output. It is yet to be seen how long these shipments will withhold delivery, but the longer the wait, the more damage is done to Egyptian LNG exports. Only recently did Egypt begin exporting LNG, following a several-month break in distribution. The Israeli conflict may rapidly decrease Egypt’s momentum for future exports, which could have devastating implications for the Egyptian economy, gas prices, and global supply.
Although Egypt has plans to become a major hub for liquid natural gas, hampered supplies could put a halt to their ambitions. While Egypt provides some of its own stores with the giant Zhor field, the lack of Israeli imports is a detrimental loss.
Chevron Reroutes All Israeli Exports Through Jordanian Pipeline
In response to Tamar shutting down, Chevron rerouted all Israeli oil exports through a Jordanian pipeline, which could provide some relief to Egypt’s supply demand. This is not the first time Israel has used the Jordanian channel to supply Egypt. In 2022, Israel utilized the pipeline to circumnavigate interference with Israeli transmission systems at the Ashkelon port.
While this move provides temporary relief for Egyptian LNG production, it is not a long-term solution. Although Israel’s larger field, Leviathan, remains in operation, the full effects of the Israeli – Hamas war are yet to be seen. Taking other fields offline is not out of the question if the conflict continues, which could significantly reduce or halt Israeli gas exports.
Europe Could See Fewer LNG and Oil Shipments
European nations became major buyers of Egyptian LNG exports following Moscow’s invasion of Ukraine. After pivoting to other sources for liquid natural gas and oil imports, European countries turned to North Africa and the Middle East to supply their oil and gas needs.
Although Egypt did send out a shipment to European nations one day before the Hamas attack on Israel, the conflict is rapidly altering the potential for the North African nation’s sustainable LNG exploitation.
Europe could potentially see fewer and fewer shipments from Egypt due to a lack of supply from Israel. Furthermore, Jordan, another beneficiary of Israeli LNG exports, could possibly refuse any future exports as well. Although Jordan is not a current exporter, a lack of supply could diminish its future prospects for exporting to European nations.
The global economic impacts of Hamas’s surprise attack are already being felt in Europe, as the Benchmark European gas costs rose nearly as much as 13%, the highest it has been since midsummer this year. The opportunity may present itself for American LNG exporters like Cheniere Energy, Inc. (NYSE: LNG) to help fill some of the void the conflict has left. Time will tell.
Global Brent Oil Benchmark Price Rises By Nearly $5 per Barrel
Gas prices quickly rose following Hamas’s surprise attack on October 7th. The already brittle global economy continues to teeter as the ripple effects have led to a new series of risks. As the world watched the events unfold in horror, the price of oil jumped by nearly $5 per barrel. The market reaction to Hamas’s attack wasted no time in hiking prices at the pump.
Since the initial spike, the market has been relatively plateaued. However, as the conflict continues, it could spiral into further economic tragedy and more significant impacts on consumers’ everyday living expenses.
Economical Ramifications of Israeli Conflict
The cost of oil has long been an indicator of the economy’s health. When prices spike, inflation runs rampant, groceries become more costly, and energy consumers pay more. While the fighting continues, the global economy will significantly impact tourism, trade, inflation, and long-term economic consequences.
Experts say the conflict could spell disaster for the rest of the globe should it spread.
Prominent economist and businessman, Mohamed El-Erian, told CNBC, “If this expands and brings in other parties, then the outlook is for even a weaker global economy, even more inflationary pressures. And the markets are going to be finding it hard to deal with that.”
The shekel dropped to a 7-year low following Hamas’s ambush in Israel. While it’s easy to look at some of the global effects of this conflict, Israel is experiencing the brunt of the economic downturn.
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