War in Palestine + Israel disrupts flights

Several major airlines have suspended flights to Tel Aviv’s Ben Gurion International Airport due to escalating violence in Israel and Palestine, Simple Flying reports. Approximately 20% of services have been suspended, with the interruptions expected to continue through the week.

Who’s taken action: Air France, ANA, Delta Air Lines, Wizz Air, Brussels Airlines, Lufthansa, United Airlines, American Airlines, and Air India have suspended flights to Tel Aviv, while Iberia, Turkish Airlines, and Ryanair have cut back their services, according to Simple Flying and CBS News. Emirates, Aegean Airlines, and Italian national carrier ITA have also canceled trips to Tel Aviv. Israeli carriers El Al, Israir Airlines, and Arkia Israeli Airlines were still offering some services as of Sunday, albeit with several delays.

US and Israeli authorities have also issued air travel warnings: The US’ Federal Aviation Administration (FAA) and the Israeli Civil Aviation Authority have issued an advisory to commercial airliners to exercise caution when conducting flights in Israeli airspace, ABC News reports. The warnings came after Israeli Prime Minister Benjamin Netanyahu declared a state of war against Palestinian resistance group Hamas. The US State Department also urged citizens to be extra cautious if traveling to Israel due to “terrorism and civil unrest” and issued a “do not travel” advisory for Gaza. The union representing American Airlines pilots also instructed its members to halt flight operations to Israel.

REFRESHER- The Israeli military launched retaliatory airstrikes in the Gaza Strip after Hamas gunmen killed at least 250 Israelis in a shock ground attack early on Saturday. More than 1,500 people have been killed on both sides, and thousands more are injured.

MARKET REAX-

War upends hopes for a global economic recovery? The renewed conflict has dealt a blow to analysts’ hopes that the world’s economy had finally rounded the bend following instability brought on by the pandemic and Russia’s invasion of Ukraine, Reuters reports, citing analysts and economists. Although the war’s scope, length, and intensity will ultimately define its full economic fallout, oil and equity markets are expected to see immediate disruptions, the newswire wrote.

More uncertainty is the last thing global markets need: “Any source of economic uncertainty delays decision-making, increases risk premia,” chief economist with Northern Trust Carl Tannenbaum told Reuters. Renewed inflationary pressures may also force the US Federal Reserve to maintain high interest rates for longer.

US crude futures briefly rose over USD 86 per barrel in trading yesterday, surging as much as 5.4%, Bloomberg reports. While Israel has little impact on global oil supply, traders are concerned that the war could prompt a wider conflict, pulling in the US and Iran. Iran has become a significant crude exporter this year, but US sanctions may hinder shipments.

Things could get worse: Retaliation against Tehran, in light of reports suggesting its involvement in planning attacks on Israel, could jeopardize the vital transit of ships through the Strait of Hormuz. This passage is critical for transporting a substantial share of the world's crude oil, and the Iranian government has previously threatened to close it. Iran has denied any involvement in the attacks.

What does this mean for the global oil market? The conflict is likely to delay normalization between KSA and Israel, thereby reducing the probability of an early unwinding of Saudi output cuts. Iranian oil supply projections are also now tilted downwards amid expectations of heightened tensions, analysts say. Some analysts, however, say the impact on oil is “likely limited,” as neither Israel nor its direct neighbors are large oil producers, but this may change. One analyst stressed that for the conflict to have an evident and lasting impact on oil markets, there must be sustained reduction in supply or transport.

Meanwhile, benchmark natural gas futures surged by 15% after Chevron suspended production at its Tamar offshore field in Israel, marking the most substantial increase in futures prices in seven weeks, Bloomberg reports. Chevron suspended production following instructions from the Israeli government, citing safety concerns. However, production continues at Leviathan, the country's other major gas field. Israel had been exporting gas to neighboring countries in the MENA region and was aiming to ramp up exports to Europe to help it recover from its energy crisis. Planned labor strikes at Chevron's LNG facilities in Australia and a pipeline leak in the Baltic region further added to supply risks. As the Northern Hemisphere approaches the winter season, there has been increased attention on potential stock disruptions, even though European gas reserves are nearly at maximum capacity.