The price of oil — both Brent and West Texas Intermediate (WTI Crude) – have surged on Monday.

Generally speaking, the oil price is up roughly 4 to 5 per cent at mid-afternoon AEDT.

The spike in demand stems from the outbreak of war in the Middle East between Hamas and Israel – an armed conflict now moving into its third day.

“Israel does not produce much oil so the main risk from the Israel conflict is if Iran gets involved,” AMP chief economist Shane Oliver told The Drum.

The conflict comes close to the 50th anniversary of the Yom Kippur War – an armed conflict fought between Israel and a coalition of Arab states led by Egypt and Syria.

The war coincided with an oil supply shortage and led to a massive spike in the price of crude oil.

It also produced a global inflation shock.

Analysts, at this stage, don’t see a repeat of this event.

“[If Israel does not formally enter the war] the impact [on the oil price] will be minor as this is not 1973 (where many Arab countries were involved and cut supplies to the US),” Dr Oliver said.

However, Dr Oliver says he expects the price of oil to rise further, and the price of petrol for Australian motorists to follow higher.

“The risks are on the upside in the near term,” he said.

“Oil prices fell last week and that would normally have led to about a 10c/litre fall in petrol prices but the conflict in Israel has reversed that partly and added a bit of upside risk particularly if Russia cuts back production further … so upside risk is to around $2.25/litre.”

When asked where the petrol price would go from here, National Australia Bank chief economist Alan Oster simply said, “up”.

He added that the size of the price hike would depend on the price of oil and the value of the Australian dollar.

Motoring group NRMA, was more caution on forecasting the price of both oil and petrol.

“[We would] normally see an initial shock [in the price of oil] like this in these circumstances,” spokesperson Peter Khoury said.

“[Further price hikes] depend on if it escalates to involve Iran and Syria.”

Mr Khoury conceded it was “very worrying”, but added it was “too early to speculate just how high the price of unleaded fuel in Australia could go.

The price of petrol is included in the Australian Bureau of Statistics’ measure of inflation – known as the Consumer Price Index – or CPI.

The concern is that the prices of petrol, rental accommodation, and gas and electricity prices will continue to climb, pressuring the Reserve Bank to lift interest rates higher.

The counter-argument to this is that wages growth has remained relatively benign, meaning consumer demand should weaken further and already announced RBA interest rate hikes work their way through the system.

However recent analysis from Deutsche Bank says while wages growth remains limited, Australian household incomes are rising as people work longer hours and take on multiple jobs.

The investment bank argues this may provide the backdrop for the RBA to raise its cash rate another two times, pushing it to 4.6 per cent.

Extracted in full from: Middle East conflict pushes surge in crude oil prices – ABC News