[ANALYSIS] Risk aversion across markets as Israel declares war after Hamas’ surprise attack

Analysis details (08:13)

OVERVIEW:

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  Palestinian militant group Hamas launched a surprise multi-front attack on Israel over the weekend in which militants stormed Israeli towns and claimed to have launched up to 5,000 rockets with the initial attack.


• Israeli news reports stated that at least 700 Israelis were killed with more than 2,000 wounded and dozens taken captive.


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  Israeli PM Netanyahu said Israel is now at war with Hamas and that their enemy will pay a price it has never known before.


• It was separately reported that 232 Palestinians were killed in Israeli air strikes in Gaza, while Israel’s Foreign Ministry said two Israeli tourists and their Egyptian guide were killed in a shooting attack in Alexandria, Egypt.


• Add to that, Israel and Lebanon’s armed group Hezbollah also exchanged rocket fire over the weekend.
  


• US Defense Secretary Austin said they have directed the movement of the USS Gerald R. Ford carrier strike group to the eastern Mediterranean and the US will be providing Israel's defence forces with additional equipment and resources including munitions, according to Reuters.


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  Iranian security officials reportedly helped plan Hamas’s surprise attack on Israel and gave the green light for the assault at a meeting in Beirut last Monday, according to senior Hamas and Hezbollah members cited by WSJ. However, CNN reported the US is still seeking to determine Iran's connection to the attack.
  


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  MARKET REACTION: Risk aversion across global assets, with flows into havens (USD, XAU, JPY, Fixed Income), while oil rose as much as 5% overnight amid supply fears from the Middle East. In Europe, oil and defence names are benefitting while airliners lag amid higher oil prices and potential scrapping of routes in the region. In Israel, the Tel Aviv Stock Exchange plunged at the open, the ILS also saw significant losses before the Bank of Israel announced a programme to sell up to USD 30bln in FX.

BRIEF BACKGROUND:

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  GEOGRAPHIES: The West Bank, Gaza Strip and East Jerusalem are known as the Palestinian territories. During Roman times, the territories including the state of Israel were known as Palestine. Those who do not recognise Israel’s right to exist as a state still refer to the whole land as Palestine while others use Palestine as an umbrella term for West Bank, Gaza Strip and East Jerusalem. Israel was declared a state in 1948. Click here for an explanation of Israel's borders.


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  RECENT HISTORY: “The Israeli-Palestinian conflict dates back to the end of the nineteenth century. In 1947, the United Nations adopted Resolution 181, known as the Partition Plan, which sought to divide the British Mandate of Palestine into Arab and Jewish states. On May 14, 1948, the State of Israel was created, sparking the first Arab-Israeli War. The war ended in 1949 with Israel’s victory, but 750,000 Palestinians were displaced, and the territory was divided into 3 parts: the State of Israel, the West Bank (of the Jordan River), and the Gaza Strip.” (via Global Conflict Tracker) - Click here for the history.


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  HAMAS: A Palestinian militant group which controls the Gaza Strip and has been designated a terrorist group by the US and the EU. The group’s commander has called on Palestinians and other Arabs to join the operation against Israel. Click here for the history of Hamas.


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  HEZBOLLAH: Lebanese militant group backed by Iran. Classified as a terrorist organisation by the US and Saudi, although the EU classes only the group’s military wing as a terrorist group, while the political arm remains unlisted. Click here for the history of Hezbollah.

FOREIGN SUPPORT:

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  US: President Biden said the US stands with Israel and will never fail to have their back. Furthermore, Biden added that Israel has the right to defend itself and its people, while he directed additional support for Israel, according to the White House.


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  SAUDI: The Hamas attack happened at a sensitive time in Israel-Saudi relations, with the new nations on the cusp of normalising ties. In reaction to the attack, Saudi called for “an immediate end to the escalation between the two sides, the protection of civilians and self-restraint”, and said, “matters could explode due to the continuation of the occupation and deprivation of Palestinians’ legitimate rights and repeated provocations against its holy sites”.


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  IRAN: President Raisi said Iran supports the legitimate defence of the Palestinian nation and that the Zionist regime and its supporters are responsible for instability in the region, according to Tasnim


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  EUROPE: “The EU stands in solidarity with Israel which has the right to defend itself in line with international law, in the face of such violent and indiscriminate attacks.”


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  CHINA: Called for a de-escalation of the situation and suggested “The fundamental way out of the conflict lies in implementing the two-state solution and establishing an independent State of Palestine.”

HOUSE VIEWS:

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  CITI: “The attacks almost certainly postpone any Saudi/Israeli rapprochement, along with any high probability expectation of Saudi Arabia reducing or eliminating its extra 1mln BPD cut if prices resume their recent fall. Risks also grow for an Israeli attack on Iran, given its support and encouragement to Hamas, with timing an open question. Meanwhile, any expansion of battles will have potential repercussions on oil markets.” Meanwhile, with reported potential Iranian involvement, Citi says, “the US is likely to be significantly less permissive and encouraging of additional Iranian exports, and might take actions to more rigorously impose sanctions impeding Iranian exports and access to frozen assets going forward.”


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  TD COWEN: “Terrorist attacks and resulting combat have created risk other regional actors could become involved and/or ISR could retaliate against other parties. We think several next steps will be important to gauging the trajectory of fighting and/or cessation. We do not expect combat to end quickly and believe the risk will be elevated that fighting could spread.”


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  GOLDMAN SACHS: The bank said the developments are unlikely to have an “immediate large effect on the near-term supply-demand balance and near-term oil inventories”, as they maintain their forecast that Brent will rise to USD 100/bbl by June 2024 from Friday’s USD 85/bbl. However, the bank sees two potential implications that may way over global oil supply over time: 1) Reduced probability of Saudi-Israeli normalization and associated boost to Saudi production. 2) Downside risks to Iranian oil production.


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  RBC: “The US-led effort to secure a sweeping diplomatic reset with Saudi Arabia appears to be in a very precarious place following yesterday’s deadly events… Iran remains a very big wild card and we will be watching how strongly Prime Minister Netanyahu blames Tehran for facilitating these attacks by providing Hamas with weapons and logistical support”, says RBC, “In addition, we anticipate that Israel will escalate its long-running shadow war against Iran; which has entailed assassinations of nuclear scientists and military commanders, mysterious explosions at key nuclear and weapons facilities, and cyber-attacks on critical infrastructure sites.”

09 Oct 2023 - 08:18- EnergyGeopolitical- Source: Newsquawk