Oil prices rise as conflict between Israel and Hezbollah escalates

Rising tensions in the Middle East, including recent airstrikes between Israel and Hezbollah, are expected to keep oil prices high, according to Vivek Dhar, a mining and energy commodities strategist at the Commonwealth Bank of Australia.

Dhar said that while markets are currently betting that the conflict will not escalate into a full-scale regional war, the situation remains unstable, CNBC reported.

“Israel's response could be an attack on Iran's oil reserves and related infrastructure, which would put three to four percent of the world's oil supply at risk,” Dhar said.

Oil prices rose on Monday after Israel launched airstrikes on Lebanon, prompting the Iran-backed militant group Hezbollah to fire over 320 rockets at Israel.

U.S. West Texas Intermediate crude rose 0.75% to $75.39 a barrel, while Brent crude rose 0.67% to $79.55.

The exchange of fire came after Hezbollah said it was retaliation for Israel's assassination of its commander-in-chief, Fuad Shukr, in Beirut.

Israel, on the other hand, described its air strikes as a preemptive strike to thwart a larger attack by Hezbollah, according to Reuters.

Cedric Chehab, executive director of the BMI, said the recent clashes were not necessarily a sign of an impending all-out war.

Speaking to CNBC, Chehab said both Hezbollah and Iran primarily wanted to achieve deterrence without provoking a larger conflict.

Chehab added that both Israeli and Iranian leaders seemed keen to avoid a major escalation, with the new Iranian president likely reluctant to engage in direct confrontation.

While agreeing that the current situation was unlikely to trigger a full-scale war, Dhar said there was a risk of an unresolved issue of possible retaliation by Iran following the assassination of Hamas political leader Ismail Haniyeh in Tehran last month.

Efforts to reach a ceasefire in the ongoing Gaza conflict stalled on Sunday as no agreement could be reached between Israel and Hamas.

According to Egyptian security sources, neither side accepted the proposals of the mediators in Cairo, Reuters reported early Monday.

Dhar predicted that the price of Brent crude oil would likely fluctuate between $75 and $85 a barrel throughout September, with the possibility of further increases if hopes for a ceasefire in Gaza fade or Iran retaliates against Israel.

He added that the risk of a major conflict involving Iran remains a significant factor that could push oil prices even higher.