New Delhi: The White House-backed peace plan to end the Israel-Gaza conflict, which has drawn broad international support, could ease the geopolitical risk premium that has kept oil prices volatile, according to global energy research firm Rystad Energy.
The peace proposal includes a ceasefire, a swap of hostages held by Hamas for Palestinian prisoners, a phased Israeli withdrawal, and the disarming of Hamas. The prolonged conflict had heightened regional tensions, leading to an unprecedented direct exchange of missile strikes between Iran and Israel in April 2024 — the first open military confrontation between the two nations.
Rystad Energy’s Chief Economist Claudio Galimberti said the peace plan could have wide-ranging implications for the oil market, including a reduction in risks to global crude supply routes and a potential increase in Iranian exports.
“The peace agreement is a major breakthrough in recent Middle Eastern history – its implications for oil markets could be wide-ranging, from the possibility of a decrease in the Houthis’ attacks in the Red Sea to an increase in the likelihood of a nuclear deal with Iran and, eventually, the possibility for Iran to increase its crude and product exports,” Galimberti said.
He, however, cautioned that it was too early to draw firm conclusions given the region’s history of stalled peace efforts.
“Yet, the devil is always in the details, and I would avoid speculating right now due to the many false starts that we have witnessed in the past,” he said.
Galimberti added that the immediate impact on oil prices was likely to be limited, with a possible 1-2 per cent decline in the geopolitical risk premium attached to Brent crude.
“As of today, the immediate impact on the oil markets will be a slight decrease in the geopolitical risk premium – about 1-2 per cent of the current Brent price – as the markets figure out the details of the peace plan,” he noted.
He said if the peace plan leads to lasting stability in the Middle East, the impact on oil prices could be more structural over the longer term.
“In the longer term, if the plan for stable peace proves credible, its impact on prices could be more structural and profound,” he said.
However, Galimberti said that ongoing geopolitical tensions, including the war in Ukraine, would continue to keep the risk premium elevated.
“As long as the war in Ukraine continues, the geopolitical risk premium is destined to remain elevated, as Russia’s oil production at risk remains high, and Russia is the world’s second-largest oil exporter,” he added.
The Middle East accounts for about one-third of the world’s oil production, and any sustained de-escalation could influence global price trends, the report said.
