Oil Prices Higher As Israel-Hezbollah Conflict Escalates

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

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

"Israel's response may include an attack on Iran's oil supply and related infrastructure, which would put at risk 3-4% of global oil supply," Dhar said.

On Monday, oil prices climbed after Israel launched airstrikes in Lebanon, prompting Hezbollah, an Iran-backed militant group, to fire over 320 rockets into Israel.

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

The exchange of fire comes after Hezbollah claimed retaliation for Israel's assassination of senior commander Fuad Shukr in Beirut.

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

Cedric Chehab, managing director at BMI, said the recent clashes don't necessarily signal an impending full-scale war.

Speaking to CNBC, Chehab suggested that both Hezbollah and Iran are primarily seeking to establish deterrence without provoking a larger conflict.

Chehab added that both Israeli and Iranian leaders appear to be interested in avoiding a major escalation, with Iran's new president likely cautious about engaging in a direct confrontation.

While Dhar agreed that the current situation is unlikely to trigger an all-out war, he said there is a risk of unresolved issue of Iran's potential retaliation following the assassination of Hamas political chief Ismail Haniyeh in Tehran last month.

Efforts to broker a ceasefire in the ongoing Gaza conflict hit a roadblock on Sunday, with no agreement reached between Israel and Hamas.

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

Dhar predicted that Brent crude prices will likely fluctuate between $75 and $85 per barrel throughout September, with potential for further increases if hopes for a Gaza truce diminish or if Iran retaliates against Israel.

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