KEY POINTS
- Brent crude rose 8.7% above US$75 per barrel
- North Sea oil increased 11% to US$78
- West Texas Intermediate advanced 7.8% to US$73.7 per barrel
Oil prices jumped amid escalating tensions between Israel and Iran as fears over supply disruptions increased. Benchmark prices surged after Israel had launched military strikes against Iranian targets related to nuclear and military facilities. Brent crude rose 8.7% above US$75 per barrel, North Sea oil increased 11% to US$78, and West Texas Intermediate advanced 7.8% to US$73.7 per barrel.
Israeli leadership demonstrated its resolve. The Prime Minister stated that the strikes aimed to destroy Iran’s nuclear infrastructure, ballistic missile factories, and military capabilities, adding, “Until the danger is eliminated,” and indicating that the attacks would continue until the Iran threat was removed. Iranian state television reported the assassination of Hossein Salami, commander of the Islamic Revolutionary Guard Corps. Rumors of an Israeli attack emerged on Wednesday and intensified market concerns.
“We were not involved in these attacks. President Trump and his administration took all necessary steps to protect our forces and maintained close contact with our regional allies. Iran should not target U.S. interests or personnel,” said Marco Rubio, U.S. Secretary of State, as reported by El Financiero.
Market forces reacted swiftly. Rumors triggered a US$12 per barrel surge on concerns that conflict might reduce Iranian oil supplies and disrupt the Strait of Hormuz—a narrow waterway through which around 25% of global oil trade passed. Analysts warned that closing the Strait could prevent delivery of up to one-fifth of market oil and affect large shipments of liquefied gas from Qatar to Europe.
Supply concerns increased as escalation risk prompted stricter Western sanctions on Iran that could limit its oil sales. Analysts noted that further attacks on Iranian oil installations might reduce output and that conflict in the region could lead to a lower available supply.
Some industry experts balanced the concerns. Mukesh Sahdev, head of oil markets at Rystad Energy A/S, said, “The OPEC+ excess capacity has the potential to offset the loss of Iranian production.” Priyanka Sachdeva, senior market analyst at Phillip Nova Pte, said the escalation increased the risk of supply disruptions from major oil-producing countries and contagion while sustained higher energy costs might drive global inflation.
Technical indicators signaled growing apprehension. The near-term Brent crude futures spread deepened into backwardation, reaching US$1.53 per barrel compared to 92 cents the previous day. The spread between the December 2023 and December 2026 contracts exceeded US$2 per barrel, up from 50 cents the day before. These factors erased earlier losses, and oil recorded its largest weekly increase since 2022 along with the highest single-day percentage jump since March 2022.
Other strategists cautioned about the outlook. JPMorgan Chase & Co. warned that oil prices might reach US$130 per barrel in a worst-case scenario in the Middle East. Warren Patterson, head of commodity strategy at ING Groep NV, said, “We are again in an environment of greater geopolitical uncertainty, leaving the oil market on edge and requiring it to start discounting a higher risk premium for any possible supply disruption.” Andy Lipow, an analyst at Rapidan Energy Group, warned, “If exports are affected by the Strait of Hormuz, we could see the barrel at US$100,” and he added that excluding Iranian oil could raise prices by about US$7.50 per barrel. Bob McNally of Rapidan Energy Group argued that the oil market had been complacent about geopolitical risks and would likely incorporate a higher risk premium in crude oil prices.
Additional measures underscored the impact of the developments. U.S. government employees and their families in Israel faced travel restrictions outside urban areas, while gold prices surpassed US$3,425 per ounce as investors sought refuge amid uncertainty. Earlier, threats from Tehran prompted the U.S. to order employees to leave its Baghdad embassy after Tehran warned that it might target U.S. assets.
Diplomatic efforts remained uncertain. Before the Israeli strikes, the United States and Iran had scheduled a sixth round of nuclear talks in Oman, underscoring the delicate regional balance. With a third of global crude oil production represented in the region, the escalation reflected a risk to energy supplies worldwide.
