Oil surged after Hamas’ surprise attack on Israel over the weekend threatened to destabilize the Middle East, injecting fresh geopolitical risk into a market that’s been roiled by OPEC+ supply cuts, declining inventories, and concerns that lofty prices may destroy demand.

Traders fear an escalation could prompt a wider conflict that embroils Tehran and, possibly, the US. Iranian security officials helped to plan Hamas’ assault, the Wall Street Journal reported, citing senior members of the militant group and Hezbollah. The US, meanwhile, said it’s moving a carrier strike group to the eastern Mediterranean and augmenting its fighter squadrons in the region.

With global benchmark Brent trading almost 5% higher above $88 a barrel on Monday, here’s what market watchers are saying about the fallout so far, and what may happen to the global oil market in the days and weeks to come:

RBC Capital Markets: Iran Is ‘Very Big Wild Card’

Iran is a “very big wild card” and there will a focus on how strongly Israel Prime Minister Benjamin Netanyahu blames Tehran for facilitating the attacks, RBC Capital Markets LLC analysts including Helima Croft said in a note. If Israel directly implicates Iran, it will likely be difficult for the Biden administration to continue to adopt such a permissive sanctions regime against Tehran.

In addition, the US-led effort to secure a sweeping diplomatic reset with Saudi Arabia appears to be in a very precarious place. While the Saudi leadership has insisted on Israel making significant concessions to the Palestinians as part of any normalization agreement, given the weekend’s events, it is difficult to envision a government that is now on war-footing agreeing to such terms.

Goldman Sachs: Sticking With $100 Forecast, for Now

While Goldman Sachs Group Inc.’s forecast for Brent remained for now at $100 a barrel by June, analysts Daan Struyven, Callum Bruce and Farouk Soussa flagged two potential implications of the attacks for global oil supply.

First, the conflict reduces the likelihood of a near-term normalization in Saudi-Israeli relations and, as part of that, reduces the probability of an early unwind of the Saudi output cuts. Second, given the possibility of tensions re-escalating, the risks to Iranian oil supply projections are now tilted to the downside.

Citigroup: ‘Bullish Implications’

The attack by Hamas has “bullish implications” for oil, although the key issue is for how long that’ll be the case, according to Citigroup Inc. There are now growing risks of an Israeli attack on Iran, given its backing of Hamas, analysts incluidng Ed Morse said in a note. In addition, it seems likely the Saudi-Israeli rapprochement will be postponed, cutting expectations that Riyadh could reduce or end its 1-million-barrel-a-day voluntary supply cut, they said.

Morgan Stanley: Limited Impact, But That May Change

The impact from events in Israel is “likely limited” as neither that country nor its direct neighbors are large oil producers, and the near-term risk to crude supply is limited, according to Morgan Stanley. However, that could change if conflict spreads to other countries, although that’s not an assumption, analysts including Martijn Rats, Charlotte Firkins and Amy Gower said.

ING: War-Risk Premium

The war-risk premium has returned to the oil market following the weekend’s developments, according to Warren Patterson, head of commodities strategy at ING Groep NV. If Iran has played a role in these attacks — directly or indirectly — there could be stricter enforcement of US oil sanctions against Tehran, which would then act to tighten up an already very tight market, Patterson said. At the same time, it’s likely that OPEC+ will stick with existing supply cuts, easing them only if the crude market shows significant strength, he added.

CBA: Iranian Supplies in Focus

For the conflict to have a lasting and meaningful impact on oil markets, there must be a sustained reduction in supply or transport, Commonwealth Bank of Australia analyst Vivek Dhar said in a note. If not — and as history has shown — the price reaction tends to be temporary. Nevertheless, should Western countries now officially link Iranian intelligence to the Hamas attack, then Iran’s oil supply and exports face imminent downside risks.

Sanford C. Bernstein: The Key Points

There are three major points for oil, according to Neil Beveridge, managing director of Sanford C. Bernstein HK Ltd. First, if Iran is seen to be behind Hamas’ attacks and the US imposes stricter sanctions, that could disrupt Iranian exports, he said. Second, there’s a question whether the conflict will escalate to involve neighboring nations, and third, whether the Saudi-Israel normalization agreement will hold, he said.

Javier Blas: US Sanctions May Hold Key

At this stage, everything depends about how Israel responds to Hamas, which launched the attack, and Iran, which typically pulls the strings of the Palestinian group. Among the tentative conclusions is that even if Israel doesn’t immediately respond to Iran, the repercussions will likely affect Iranian oil production as the US enforces sanctions with greater rigor. That could be enough to push oil prices to $100 a barrel, and potentially beyond.

CITIC Futures: Watch for Escalation

Previously, oil rose as much as 240% , 45%, and 40% during 1990 Gulf War, 2003 Iraq war, and 2011 Libya war, with prices later falling back, according to Gui Chenxi, an analyst at CITIC Futures Co. This time, the Israel-Palestinian conflict hasn’t yet filtered through to neighboring crude-producing nations, having a limited impact on fundamentals, Gui said. However, the risk-off mood could support prices, and the market should watch for any escalation.

--With assistance from Elizabeth Low, Sarah Chen and Serene Cheong.

(Adds comments from Morgan Stanley)