Crude-oil futures fell under $74 a barrel to trade near a one-week low Tuesday (July 18) as traders appeared to deem the potential spread of the violence between Israel and Lebanon into other areas of the Middle East as unlikely.
But, according to CBS MarketWatch, some analysts were quick to warn that Iran’s involvement remains a possibility.
“As far as the oil markets go, the fear comes from the potential involvement of Iran in the current crisis, since neither Israel nor Lebanon are major producers, consumers or distributors of energy products,” said Rakesh Shankar, an economist at Moody’s Economy.com.
“We continue to believe that Iran’s involvement in the crisis will largely be relegated to bombast, rather than any particular action,” he said.
Iran benefits more from talking up oil prices through potential for action, rather than actually cutting back on their production, he explained. So, “the possibility of Iran imposing any kind of embargo by withdrawing oil exports is highly unlikely,” he said.
Still, if Iran – the world’s fourth-largest oil producer – does get involved, it will likely not be by choice, Shankar said, pointing out the possibility that “a potential escalation in the conflict could be an Israeli decision to attack a Syrian or Iranian target.”
Also, “destabilizing agents within Iran’s Southern Khuzestan province, home to the vast majority of Iran’s oil reserves, could attack and damage one of Iran’s oil targets,” he said.
“This is a very real threat, and one that would be immensely destabilizing both to the Iranian government and to oil markets,” he said.
Crude for August delivery dropped $1.40 to trade at $73.90 a barrel on the New York Mercantile Exchange – its lowest intraday level since July 12 – marking a hefty retreat from an earlier peak of $76.55.
The contract lost more than 2% Monday with traders apparently more optimistic about prospects for a resolution of the conflict in the Middle East, even as the violence continued.