Spotlight on Oil Surge as Iran–Israel Strikes Shake Markets
Oil markets surged on Tuesday and Wednesday as escalating military exchanges between Iran and Israel sparked investor anxiety. Brent crude futures climbed approximately 2.1 per cent to $74.79 a barrel by 12:02 GMT, while US West Texas Intermediate settled near $73.19—following intraday swings exceeding 2 per cent gains and drops.
The gains were driven by soaring geopolitical concerns after Israel bombed Iran's South Pars gas field—shared with Qatar—igniting a fire that prompted Iran to partially suspend production. Also targeted were the Shahran oil depot and a Tehran refinery, although global oil flows have remained operational.
Observers note volatility remains elevated. Market watchers highlight a spike in tanker insurance and freight rates, especially for VLCCs on Middle East–China routes, which surged about 40 per cent since mid‑June, signalling heightened risk premiums. While no direct disruptions have materialised in the Strait of Hormuz, reports of electronic interference in navigation systems have amplified concerns.
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US WTI futures firmed to $75.14 on Wednesday, reflecting investor caution amid potential supply threats and uncertainty over US military involvement. Tehran's Supreme Leader rejected demands for unconditional surrender, while US President Trump hinted at possible support for Israeli strikes—although official confirmation of action remains pending.
The South Pars incident marks the first Israeli strike on Iranian energy infrastructure and highlights the escalation's seriousness. Iran's halt of approximately 12 million m³/day of gas output affects domestic supply but Qatar confirms its output remains steady, mitigating immediate global supply concerns.
Nonetheless, energy analysts warn that prolonging conflict could threaten key maritime chokepoints. Disruption in the Strait of Hormuz—through which around one‑third of global seaborne oil trade is transported—could rapidly propel Brent crude above $100 a barrel. ING strategists suggest even temporary closure might push prices toward $120, though this remains a worst‑case scenario.
Global equities and commodity markets have already responded. The tanker market's cost spike and oil volatility have ripple effects on stock indices and inflation expectations. Goldman Sachs reports oil-market volatility is at a 25‑year high, while shipping data signals broader hesitation among supply chain actors.
Despite increased oil prices—about 2–4 per cent over the week—the immediate supply chain remains intact. Alternatives such as US shale output and OPEC spare capacity could buffer prolonged disruption. Economic commentators note the impact on inflation may be limited in the US, even if oil sustains elevated levels, given domestic production resilience.
Still, instability persists. Israeli raids on 250-plus targets in Iran, including Phase 14 of South Pars and energy sites, signal strategic intentions to weaken Iran's energy capabilities. Iran's retaliatory missile and drone strikes have fuelled fears of cross‑Gulf escalation.
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