On the one-year anniversary of the terrible Hamas attacks on Israeli citizens, the price of oil is still US$10 per barrel below what it was on that day, even though it has surged US$8 or 12 per cent in the past seven days.

The events of October 7, 2023, happened a day after the 50th anniversary of the surprise attacks on Israel by Egypt and Syria that started the 1973 Yom Kippur war, and which led to the first oil shock.

So tomorrow is the 51st anniversary of the failure of oil price negotiations between OPEC and the major oil companies, prompted by the US’s immediate support of Israel, that led to oil export embargoes and a huge price increase a week later.

So that 1973 attempt to expel the Jews from the lands of the Arabs became a global economic event, one that changed the world forever.

This time is different, and the same. This time it’s Iran trying to expel the Jews.

The reason the oil price surged last week is that suddenly it dawned on commodity traders, who had been focused on declining demand, that if the Israel government is prepared to go beyond trying to eliminate Hamas, and to blow up the pagers and walkie-talkies of Hezbollah soldiers and to decapitate its leadership structure in Lebanon, maybe it will take the opportunity to deal with the source of its problem in 2024 – the mullahs of Iran.

That idea was sparked by a video last Monday in which Israeli prime minister Benjamin Netanyahu spoke directly to the Iranian people.

“When Iran is finally free”, he said, “and that moment will come a lot sooner than people think, everything will be different.”

It was seen at the time as some more Netanyahu hyperbole, but then on Thursday, US President Joe Biden was asked whether America would support Israel striking Iran’s oil production and export facilities. He replied: “We’re discussing that.”

So we now have the following decision tree:

Will Israel try to take down the Iranian regime?

If yes – will it attack Iran’s oil-producing capacity, most of which are conveniently gathered on Kharg Island about 25 kilometres off the coast?

(Without oil exports, Iran’s currency would collapse, resulting in hyperinflation, economic crisis and presumably revolution. But Iran produces about 1.6 million barrels of oil and condensate a day, just 3 per cent global production, almost all of which goes to China, so this step, on its own, while devastating for Iran, would not cause a global oil shock).

If yes – will Iran retaliate by taking out Saudi Arabian and United Arab Emirates oil production capacity, as it has promised to do if attacked?

If yes, and it is effective, then a 1973-style oil shock would ensue and the world would enter an epic inflationary bust.

President Biden now says he is trying to talk Netanyahu out of bombing Iran’s oil facilities, but if we’ve learnt anything these past 12 months it’s that Israel is not listening to Joe Biden.

And the temptation is powerful to use this opportunity to take out the source of funding for the three outfits killing Israelis and actively trying to expel the Jews from the Middle East – Hamas, Hezbollah and the Houthis of Yemen – that is, Iran’s oil revenue.

Former Israeli prime minister Naftali Bennett told the Wall Street Journal last week: “Hezbollah and Hamas are paralysed temporarily and Iran is exposed. Right now, they’re naked, they don’t have the ability to protect themselves. Israel has the greatest opportunity in 50 years to change the face of the Middle East.”

That piece in the WSJ that quoted him went on: “The recent blows dealt to Iran and its allies have instilled a spirit of giddiness among some Israeli officials and policymakers, creating a temptation not just to revamp Lebanon’s political makeup that has been dominated by Hezbollah, but maybe even to spur regime change within Iran, which maintained good relations with Israel before the 1979 Islamic revolution.”

But as Nadim Houry, executive director of the Arab Reform Initiative said: “The danger right now is the temptation of thinking ‘This is a historical moment, let’s remake the Middle East’. It’s something that has tended in the past to be a foolish and extremely tragic endeavour, one that becomes more complicated and tragic with each round.”

The real problem for Israel is that if it does succeed in remaking the Middle East and removing the problem of Iran and its proxies, then it will be forced to confront its own identity, and destiny.

Specifically it will be forced to adopt a constitution and clearly define its borders, two things Israel’s leaders have managed to avoid since 1948 because of the perpetual crisis.

In November 1947, UN Resolution 181, which embodied the original Palestine partition, required both the Jewish and Arab states to adopt democratic constitutions, and Zionist leaders began drafting one.

Early drafts show that the founders were well aware what was needed to make the country a full democracy, including the equality of all citizens, a bill of rights, and a clear definition of the powers of each branch of government.

But after the declaration of independence in May 1948, the first prime minister, David Ben-Gurion, opposed a constitution for similar reasons to those that motivate Netanyahu today: Fear of alienating the religious political parties who reject secular government and giving equal rights to Arab citizens who may be a threat to Israel’s security.

As Dahlia Sheindlin, a policy fellow at Century International, and a columnist at the Haaretz newspaper wrote last week: “Whatever the reason, the failure to adopt a constitution meant that Israel lacked binding legal foundations for core components of democratic statehood.”

And as Sheindlin also points out, apart from its border with Egypt, established in the 1978 Camp David accords, Israel has never defined the limits of its sovereign territory, allowing the settlement movement to spread through all the occupied lands, especially the West Bank.

Israel has a big decision to make: Continue the status quo of perpetual crisis, which allows the flexibility of having no constitution and no clear borders, as well as the subjugation of the Palestinians as enemies, or destroy Iran and its proxies, and find out what living in peace with Palestinians actually means.
It would have to mean a Palestinian state, and giving Arab citizens the vote.

Alan Kohler writes weekly for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor.