We previously thought that Israel would ramp up its war rhetoric so that the U.S. and Europe would continue to pressure Iran on the nuclear program. Such rhetoric has increased the geopolitical risk premium on oil prices in the past.
But Israeli PM Benjamin Netanyahu has now said that he agrees with U.S. President Obamas assessment that it would take Iran longer than a year to produce a nuclear weapon. This pushes back the Israeli red line to Spring/Summer 2014.
The bottom line is that Netanyahu has agreed to give the U.S. more time to use diplomacy and sanctions to force Iran to give up its nuclear weapons program. Tail risk of oil and gasoline price spikes this summer has been reduced.