The Oil Market Is Chilling Out About Hezbollah

The global energy market breathed a sigh of relief after Hassan Nasrallah, the secretary general of the Lebanese militia Hezbollah, gave a widely anticipated speech that indicated the group would not escalate its current skirmishes with the Israeli military into a full-on conflict. Hezbollah maintains a large force on Lebanon’s border with Israel.

Ever since Hamas’s attack on southern Israel and the subsequent Israeli bombardment of Gaza, a lurking question has been whether other regional powers — specifically Iran, which supports Hamas as well as Hezbollah — would get involved.

“Nasrallah sent a pretty strong signal — Hezbollah won’t enter the fight to save Hamas. If the conflict remains contained to Gaza, there’s little chance we’ll see an escalation that could impact Iran or regional oil flows,” Greg Brew, an analyst at Eurasia Group, told me.

There have been fears that a regional conflagration would not only lead to widespread suffering, but hit the global oil market and broader energy sector as well.

Oil prices shot up after the October 7 attack, with Brent crude rising to roughly $88 a barrel on Monday, October 9, and hitting as high as $92.16 on October 20. It has since settled to around $85, falling over two dollars Friday. Crude prices peaked at $96.55 in late September, the highest they have been this year.

“Prices are still volatile and we’ll probably see more reactions based on changes to the conflict,” Brew told me. “But the consensus that this won’t spill over to markets has only strengthened; Nasrallah speech will reinforce it further.”

While the eastern Mediterranean is only a minor region for hydrocarbon extraction, both Iran and Saudi Arabia are major oil exporters, despite Iran being under sanctions for its nuclear program.

Saudi Arabia and Israel had been in talks about normalizing relations before the Hamas attack and there were even indications that Saudi Arabia would boost production next year to ease the path to a deal. After the attack, Republicans in Congress called on the Biden administration to tighten sanctions on Iran to limit oil exports.

In his speech, Nasrallah’s “general message was that Hezbollah was already doing enough,” according to The New York Times, a sign that escalation beyond the occasional clashes between Hezbollah and the Israeli military — let alone directly involvement by Iran — was unlikely.