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As Israel’s war against Hamas escalates, US sends a warning to Iran, raising fears of a recession

By business reporter Nassim Khadem

As fears mount over Tehran’s involvement in the Israel-Gaza conflict, the Biden administration has sent a clear message to Iran’s regime: exercise caution.

A spokesman for Hamas had told the BBC that it had received support from its ally Iran for the unprecedented attacks against Israeli civilians.

And another report in the Wall Street Journal quoted unnamed members of Hamas and the Lebanese guerilla movement Hezbollah as saying that Iran gave the go-ahead for the attack more than a week ago.

While Iran’s leaders have celebrated and praised the attacks on Israeli citizens, Iran’s Foreign Ministry has downplayed its role, saying, “the accusations linked to an Iranian role … are based on political reasons”.

But the Biden administration has noted that, although the US so far does not have intelligence or evidence pointing to Iran’s direct participation, Iran is complicit in the attacks.

White House national security spokesperson John Kirby this week told US media organisations: “Iran has long supported Hamas and other terrorist networks throughout the region with resources capabilities training. And so, in that regard, clearly, Iran is complicit here.”


Could this mean US retaliation against Tehran?

In a meeting with a roundtable of Jewish leaders at the White House this week, US President Joe Biden discussed the deployment of US military ships and aircraft closer to Israel.

Washington has already pledged ongoing support for Israel and dispatched its top diplomat, Antony Blinken, to the region in a bid to avert a wider war across the Middle East.

Loreen Gilbert, CEO of WealthWise Financial Services, warned earlier this week that the potential for market disruption is high. 

“It’s when and if that conflict becomes a broader conflict, multi-nation, multi-country conflict that has the potential to certainly derail markets,” she said.

Mark Dubowitz, chief executive of think-tank the Foundation for Defense of Democracies, based in Washington, suggests Hamas has long relied on Iranian technology and logistical support to produce arms, such as rockets and armed drones.

And he said while the regime has been igniting wars in Syria, Lebanon, Yemen, and Iraq, Iran’s Supreme leader Ali Khamenei and his Islamic Revolutionary Guard Corps (IRGC) have returned to their main focus — the destruction of Israel.

“Make no mistake, the prospects for a greater regional war are growing,” he said.

Iranian oil exports could take a hit

While Iran is accused of supporting and funding terrorism, there’s been a marked increase in Iranians protesting against the regime across Iranian cities, and many want the US to take stronger action.

Iranians have been risking their lives for freedom following the death-in-custody of Mahsa Jina Amini more than one year ago, which sparked the global ‘Women, Life Freedom’ movement and calls for regime change.  

But commentators warn if the war spreads further, and Washington imposes tougher restrictions, Iranian oil production could come under pressure.

Iran is a OPEC oil producing nation and its exports have risen in recent years, filling a void left after Russia’s invasion of Ukraine, and under what some argue, is a softer approach to sanctions under the Biden administration.

Some analysts have put Iranian crude production at more than 3 million barrels a day and exports above 2 million barrels a day — the highest levels since the Trump administration pulled the US out of the Iranian nuclear accord in 2018, according to the Wall Street Journal.

Sales fell to about 400,000 barrels a day in 2020 as the US reimposed sanctions at the time.

Then there are accusations Iran’s regime benefits from illicit oil sales.

While it’s difficult to know exactly how much revenue the regime derives from black market sales, “Iran has generated approximately $80 billion in revenue from oil sales under the Biden administration”, according to Claire Jungman, chief of staff at United Against a Nuclear Iran, an NGO and watchdog group that closely tracks Tehran’s illicit oil exports and arsenal of tankers. 

She suggests a substantial portion of this oil is shipped into China, and the oil surplus has not only sustained the regime, “but also significantly fortified their proxies” such as Hamas in Gaza and Hezbollah in Lebanon.

‘Iran remains a big wild card’

There’s also a risk, according to some analysts, that Iran itself could disrupt the flow of oil through the Strait of Hormuz.

This critical waterway separates the Persian Gulf from the Arabian Sea and about 20 per cent of world’s oil is shipped through here.

Helima Croft, head of global commodity strategy at RBC Capital Markets, said “Iran remains a very big wild card”.

“We will be watching how strongly [Israeli] Prime Minister Netanyahu blames Tehran for facilitating these attacks by providing Hamas with weapons and logistical support,” she said earlier this week.

Hedge-fund manager Pierre Andurand, one of the world’s best energy traders, said in a social-media post that what happens in Iran is being closely watched by market players.

“As Iran is also behind Hamas’ attacks on Israel, there is a good probability that the US administration will start enforcing those sanctions on Iranian oil exports more tightly,” he wrote.

“That would further tighten the oil market. Also, the probability that this will lead to direct conflict with Iran is not zero.”

Will Saudi Arabia step in to guarantee oil production?

If Iran’s oil supply is cut, a key question is whether Saudi Arabia will help fill the gap.

It’s a key producer that forms part of the OPEC oil producing nations, and earlier this year cut production cut by 1-million barrels a day.

It’s worth noting public comments the Saudis have made so far suggest it may be prepared to ramp up production if necessary.

This week, Iranian President Ebrahim Raisi and Saudi Crown Prince Mohammed bin Salman discussed the conflict in the first telephone call between the two leaders since a China-brokered deal between Tehran and Riyadh to resume ties.

The Saudi crown prince “affirmed that the Kingdom is making all possible efforts in communicating with all international and regional parties to stop the ongoing escalation,” Saudi state news agency SPA said.

David Bassanese, chief economist at Betashares, said he expects the Saudis will step in to shore up oil supply if needed.

The consequences for the economy would be disastrous if it doesn’t, he said.

“If the sanctions on Iran are toughened, and there’s no other alternative supply coming through countries such as Saudi Arabia, oil prices could easily sale through $US100 (a barrel),” he said.

“That’s going to add to inflation pressure globally, that’s going to add to pressure on central banks to keep raising interest rates and add to the risk of a global recession.”

If tensions in the region continue to escalate, we could be in for a long period of economic uncertainty.



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