An Israeli attack on Iran could send oil prices above $100 as tensions mount
Beset by near-universal bearish outlooks just a month ago, oil prices could spike to more than $100 a barrel in the event of an Israeli attack on Iran, some analysts are warning. Crude prices spiked as much as 5% overnight — before paring gains — on fears of military escalation between Iran and Israel as President Donald Trump announced the withdrawal of some U.S. personnel from embassies and bases across the Middle East. The front-month August contract for global benchmark Brent crude was trading at $69 per barrel at 3:20 p.m. ET on Thursday, while the front-month July U.S. WTI contract was at $67.7 per barrel. "They [U.S. military personnel] are being moved out because it could be a dangerous place and we will see what happens... We have given notice to move out," Trump told reporters on Wednesday. The Pentagon has ordered the withdrawal of troops and non-essential staff from embassies in Baghdad, Kuwait and Bahrain. The jury is still out as to whether the moves are a pressure play ahead of upcoming U.S.-Iran nuclear talks, or whether the U.S., Israel and Iran are truly on the verge of conflict. The geopolitical risk premium is "already at least partially reflected in current oil prices," according to J.P. Morgan's global commodities research team, citing Brent crude trading at just under $70 a barrel, already above its model-derived fair value figure of $66 for June. "This suggests an elevated 7% probability of a worst-case scenario, where the price reaction is exponential rather than linear, with the impact on supply potentially extending beyond a 2.1 mbd (million barrels per day) reduction in Iranian oil exports," the bank's research team wrote in a note published Thursday. Iran is OPEC's third-largest crude producer. Israel appears ready to attack Iran, according to reports citing U.S. and European officials, and Israeli Prime Minister Benjamin Netanyahu has been pressing Trump to allow strikes. But the American president said in late May that he had warned Netanyahu against attacking Iran while negotiations with Washington were under way. U.S. Middle East envoy Steve Witkoff is currently set to meet with Iranian Foreign Minister Abbas Araghchi in Oman on Sunday for a sixth round of negotiations. Strait of Hormuz in focus Oil traders are focusing on the potential of a wider conflict shutting down the Strait of Hormuz, a critical chokepoint through which 20% of the volume of the world's total oil consumption passes daily. The British Navy on Wednesday issued a rare warning to ships in the region, saying it had "been made aware of increased tensions within the region which could lead to an escalation of military activity having a direct impact on mariners." It urged caution for vessels transiting "the Arabian Gulf, Gulf of Oman and Straits of Hormuz." Beyond that, J.P. Morgan warned, "a more general Middle East conflagration could ignite retaliatory responses from major oil producing countries in the region responsible for a third of global oil output." "Under this severe outcome," the bank's analysts wrote, "we estimate oil prices could surge to the $120-130/bbl range." Even before the latest uptick in tensions, some oil industry watchers were already making bullish calls despite a flood of announced OPEC+ supply coming onto the market, and lower global growth and demand forecasts due to trade and tariff tensions. Josh Young, founder and chief investment officer at Houston-based Bison Interests, told CNBC in late May that physical markets are more tightly supplied than previously thought, and with several oil rigs in the U.S. shale patch coming offline just as the U.S. summer driving season begins, markets should be preparing for Brent crude at $85 a barrel. "The pure inventory versus consumption would indicate $85 [per barrel], which is way higher than where we are right now. It's almost uncomfortable to say that, but that's the current price implied by inventories," Young told CNBC's Access Middle East. He cited his forecast figure as "fair value," arguing that "typically, you go from too cheap to too expensive. So I don't think we should be ruling out $100 oil this year. And I think if there is a geopolitical risk, it could get even higher." Without the geopolitical risk premium — namely, a conflict with Iran — Young still sees crude coming up to the $80 to $85 per barrel range, particularly in the event of trade deals being reached and Trump's tariffs being lowered. The outlook is boosted by this month's forecast from the U.S. Energy Information Administration, which sees a decline in U.S. oil production for the first time since the Covid-19 pandemic due to slower drilling activity and a declining rig count. Such bullish forecasts are certainly not the norm, however. Without a military attack on Iran, J.P. Morgan's base case for oil "remains in the low-to-mid $60s oil for the remainder of 2025, and $60 in 2026." Goldman Sachs also maintains an oil price forecast in the $50 to $60 per barrel range for this and next year, despite noting an improving demand picture, downside risks to U.S. supply and geopolitical tensions. The recent rise in inventories due to OPEC+ output increases, "supports our cautious oil price forecast, with Brent expected to average $60 for the rest of 2025 and $56 in 2026," the bank's commodities team wrote. "However, small misses in OPEC+ supply suggest that lower-than-anticipated spare capacity represents an upside risk to our price forecast."
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CNN
23 minutes ago
- CNN
National Portrait Gallery head resigns two weeks after Trump called for her firing
The director of the National Portrait Gallery has resigned from her post, according to a memo sent to Smithsonian employees and obtained by CNN. Kim Sajet's departure from the gallery comes just two weeks after President Donald Trump called for her employment to be terminated in a post on Truth Social, claiming she was 'highly partisan' and a supporter of diversity, equity and inclusion initiatives that his administration has worked to end. The secretary of the Smithsonian Institution, Lonnie Bunch, wrote in the memo that Sajet is stepping down on Friday, writing that she had led the gallery 'with passion and creativity for 12 years.' The New York Times first reported Sajet's resignation. 'Throughout her tenure, she has reimagined and reshaped the impact and storytelling of portraiture,' Bunch said. Sajet was the first woman to serve in the role. The National Portrait Gallery in Washington, DC, is part of the Smithsonian Institution, which is the world's largest museum complex, including 21 museums and the National Zoo. Earlier this week, the Smithsonian released a statement emphasizing its 'nonpartisan stature' and saying 'all personnel decisions' are made by its secretary. The institution added that its Board of Regents 'is committed to ensuring that the Smithsonian is a beacon of scholarship free from political or partisan influence.' Trump has sought to influence cultural and artistic institutions, including the Smithsonian. In March, he signed an executive order putting Vice President JD Vance in charge of stopping government spending on 'exhibits or programs that degrade shared American values, divide Americans based on race, or promote programs or ideologies inconsistent with Federal law and policy.' Vance serves on the institution's board of regents by virtue of his role as vice president. 'This was not an easy decision, but I believe it is the right one,' Sajet said in a statement included in Bunch's memo, which did not mention Trump. 'From the very beginning, my guiding principle has been to put the museum first. Today, I believe that stepping aside is the best way to serve the institution I hold so deeply in my heart,' she added. Bunch wrote that the undersecretary for museums and culture, Kevin Gover, will take over as acting director of the gallery.
Axios
25 minutes ago
- Axios
Public media funding cuts hit Chicago: WBEZ, WTTW brace for impact
President Trump and the Republican-majority U.S. House moved one step closer to cutting funding for public media, putting local organizations in limbo. The latest: The House passed a bill Thursday afternoon to cancel over $1 billion in funding for PBS and NPR, via the Corporation for Public Broadcasting. This funding was included in the 2025 fiscal year budget, but this action removes it. Why it matters: Federal funding for public media could vanish — and Chicago stations like WBEZ and WTTW are bracing for the fallout. The big picture: The move breaks decades of bipartisan tradition treating CPB funding as apolitical and throws public media companies into budgetary chaos. What they're saying: "If approved, this cancellation of funding would eliminate critical investments, stripping resources that we use to power independent journalism, educational programming, emergency alerts and the infrastructure that supports the entire network of newsrooms nationwide," Chicago Public Media CEO Melissa Bell wrote to station members. "This could threaten the ability of PBS, and member stations like WTTW, to operate autonomously," a WTTW spokesperson said in a statement. By the numbers: The cuts would amount to about 6 percent of Chicago Public Media's budget, which the organization estimates to be about $3 million annually. That's not factoring in possible syndication costs handed down by National Public Radio, which is also losing funding from this bill. For WTTW, 10% of its 2024 budget came from federal funding. Zoom in: Chicago Public Media and WTTW (which also includes WFMT-FM) are among the largest public media organizations. Chicago Public Media (WBEZ/Sun-Times) reported revenue of $70 million for 2024, while WTTW had a total operating budget of $32.7 million. Both organizations receive significant revenue from member donations. Yes, but: Smaller Illinois radio stations, such as WILL-FM in Urbana, WUIS-FM in Springfield, and WNIJ-FM in DeKalb, have significantly higher federal funding, in some cases accounting for half of their budgets. Those stations are attached to local universities. Zoom out: It's unclear if the organizations will supercharge fundraising to attract more private donors or cut back on programming and staff. Chicago Public Media recently cut staff at both the Sun-Times and WBEZ. The intrigue: The rescission package aims to claw back funding that Congress previously approved for fiscal year 2025. It primarily consists of cuts identified by DOGE, which include funding for foreign aid programs such as USAID. The Corporation for Public Broadcasting's funding is usually allocated every two years, so this cuts the second year of funding and puts future allocations in serious doubt. The rescission bill is rare in government. Trump attempted to use it during his first term, but was defeated in the Senate. Between the lines: Republicans have increasingly painted public media as left-leaning and biased, citing PBS programs like "Sesame Street" as "woke propaganda." The other side: Public media offers a variety of independent programming from news, culture, food and children's programs, funded to avoid programming influenced by corporations and commercials.
San Francisco Chronicle
25 minutes ago
- San Francisco Chronicle
Unrest in the Middle East threatens to send some prices higher
Israel's attack on Iran Friday has catapulted their long-running conflict into what could become a wider, more dangerous regional war and potentially drive prices higher for both businesses and households. Oil and gold surged and the dollar rose as markets retreated, signaling a flight to investments perceived as more safe. After years of sky-high inflation in the aftermath of the COVID-19 pandemic, Americans have become increasingly leery about the economy this year due to President Donald Trump's sweeping tariffs, though the impact so far has been muted. The latest escalation in the Middle East has the potential to cause widespread price increases that could set consumers back again. Here's a look at some of the sectors that could face an outsized impact from the escalation in the Middle East, and what that might mean for consumers. Energy Oil prices surged Friday to their biggest gain since the onset of Russia's war on Ukraine began more than three years ago. If or when Israel's attack on Iran could impact gas prices, which have been in decline for nearly a year, isn't entirely clear. Iran is one of the world's major producers of oil, though sanctions by Western countries have limited its sales. If a wider war erupts, it could significantly slow or stop the flow of Iran's oil to its customers. Energy prices have been held in check this year because production has remained relatively high, and demand for it low. A widening conflict could tilt that balance. 'The loss of this export supply would wipe out the surplus that was expected in the fourth quarter of this year,' analysts for ING wrote in a note to clients. In the past, conflicts in the Middle East have sent energy price soaring for extended periods but in recent years, because of the huge supply of oil, those spikes have been more fleeting. Earlier this month, the countries in the OPEC+ alliance decided to increase production again, which often pushes crude prices down. They hit a four-year low in early May. That usually means cheaper gas, of which there is currently a surplus. According to the auto club organization AAA, the average price for a gallon of gas in the U.S. on Friday was $3.13 per gallon, down from $3.46 a year ago. Shipping Shipping costs were already on the rise for a number of reasons. Cargo is being rerouted around the Red Sea where the U.S. began conducting air strikes on Yemen's Houthis, the Iran-backed rebels who were attacking ships on what is a vital global trade route. And this year, companies have scrambled to import as many goods as possible before Trump's tariffs kicked in, pushing demand, and prices to ship, higher. The Baltic Dry Index, a key indicator of dry bulk shipping demand that tacks the movement of coal, iron ore, grains and more, is hitting eight-month highs. The window for companies seeking to ship goods before the year's end is coming to a close this month. A widening conflict in the Middle East would only drive prices higher as those companies jostle to get goods from overseas as geopolitical tensions in the region rise. Shares of ocean shipping companies like Teekay and Frontline rose sharply following Israel's attack. Consumer goods Higher energy prices can lead to elevated costs for a wide range of products because just about everything is made and transported using oil or natural gas. Government data this week revealed that Trump's tariffs have yet to cause a broader rise in inflation. Still, many companies have announced price hikes due to the tariffs. Walmart has already raised prices on some goods and said it will do so again as the back-to-school shopping season begins. J.M. Smucker, largely due to the impact of tariffs on coffee from Brazil and Vietnam, said it's also raised prices and will do so again. Combined with the higher shipping and production costs that could result from the escalated Middle East conflict, prices will almost certainly rise further, analysts say. 'Inventory buffers may have allowed firms to put off decisions about raising prices, but that won't be the case for much longer,' the ING analysts said. 'We expect to see bigger spikes in the month-on-month inflation figures through the summer,' they added, noting that The Fed's recent Beige Book cited widespread reports of aggressive price hikes already in the pipeline. Federal Reserve Federal Reserve officials meet next week to make their next interest rate decision, and the vast majority of economists still think the U.S. central bank will leave its benchmark rate where it is for the fourth straight time. The Fed has been juggling its dual mandate of supporting the labor market while keeping inflation at bay. That goal may become increasingly difficult to achieve if prices for gas, food and other essential rise due to the Israel-Iran conflict. If prices go up, Fed officials may be inclined to raise its benchmark rate, raising borrowing costs for businesses and consumers. That could lead to businesses to cut jobs, particularly in the high-growth tech sector, and force Americans to pull back on spending, which drives more than 70% of economic activity in the U.S. Travel Perhaps contrary to conventional wisdom, one cascading effect of the heightened Middle East tension may be that the cost of traveling, even if fuel prices rise, will come down. Airlines have been downgrading their travel forecasts as businesses and families tighten their travel budgets in anticipation of tariff-related price hikes. Several major air disasters also have made some wary of getting on a plane. Most major U.S. airlines have said they plan to reduce their scheduled domestic flights this summer, citing an ebb in economy passengers booking leisure trips. Last month, Bank of America reported that its credit card customers were spending less on flights and lodging. And because of the Trump tariff wars, the dollar has fallen almost 10% this year when measured against a basket of foreign currencies, making it more expensive for Americans to travel abroad due to unfavorable exchange rates.
