Prepare for a Middle Eastern energy storm

Telegraph

9 hours ago

Oil, currency and equity markets are treating all-out war between Israel and the Iranian regime almost as if it were a routine and contained Middle East spat, likely to blow over as so often before.
It is nothing of the sort. Israel's Benjamin Netanyahu aims to overthrow Iran's clerical-military regime and talks openly of liquidating the supreme leader, Ayatollah Ali Khamenei. This is a fight to the death.
There is a very high risk that the US, Britain, and France will be drawn directly into the conflict – pitting the democracies against the coalescing confederacy of Iran, China, Russia and North Korea, and its disturbingly large tail of semi-aligned states.
The hybrid struggle between two rival blocs resembles the treacherous landscape before the Thirty Years War in 1618, and the First World War in 1914. All it takes is hubris and a few more errors to set off this slow-burning fuse.
Brent crude prices have already slipped back to $74 a barrel as I write. The market is in steep 'backwardation'. Futures contracts for autumn were trading near $66 on Tuesday morning – far below the average range over the last 20 years in real terms.
Investors are implicitly betting that neither side will up the ante and attack tankers or export terminals in a region that supplies 18pc of the world's oil and 20pc of its liquefied natural gas (LNG). The logic of this conflict may force both to do exactly that.
'Energy is now clearly in the crosshairs,' said Helima Croft, commodity chief at RBC Capital Markets and a former oil analyst for the CIA.
Israel has so far restricted its attacks to energy targets that hurt Iran's domestic economy. It has bombed oil and fuel depots in Tehran, and hit refineries in the South Pars gas field.
It has not yet targeted the vast oil terminal at Kharg Island, which accounts for 90pc of Iran's crude exports and essentially funds the clerico-military regime. Ms Croft sees a clear and rising risk that Israel will cross this line, setting off a perilous chain reaction.
You could read market insouciance as evidence that oil no longer matters as much as we used to think. The 'oil intensity' of global GDP has fallen by 60pc since the energy crisis of the 1970s.