Oil prices received some support from the recent conflict in Gaza, although the probability of direct supply disruptions from the violence was almost non-existent. Although the Arab-Israel conflict is not new, many of the players involved in the region today have changed, and more importantly their relationships with each other and new alliances are yet to be tested, making the political backdrop of the region fragile and fluid.
One of the most interesting features of the last few weeks has been the role played by Egypt, where, beneath the anti-Israel rhetoric, President Morsi remained committed to negotiating a settlement between Hamas and Israel. Yet on Friday, emboldened by the success in brokering a deal in the Gaza Strip, he issued a number of fairly drastic constitutional amendments, much to the dismay of Liberals and secular Egyptians, potentially signalling the start of a prolong period of instability.
Egypt and Israel-Palestine are just two of the possible flashpoints in the Middle East, which also include an increasingly unstable Syria, a problematic Yemen and above all, a defiant Iran, whose works on enriching uranium continue, according to the leaks of the IAEA quarterly report. Although we do not expect significant reduction in oil supplies, beyond what has already taken place this year through the loss of Iranian exports and shortfalls in both Syria and Yemen, the market is unlikely to easily discount the potential, however slim, for future disruptions and changes to the global political balance.