2 days ago
Oil Prices Surge as Israel Strikes Iran
Oil benchmarks surged on Friday following a major Israeli military operation in Iran, sparking fears over potential disruptions to Middle Eastern oil supplies. Brent crude climbed more than 7 %, reaching an intraday peak of approximately $78.50, before settling at around $74.23 a barrel. The US West Texas Intermediate benchmark mirrored the jump, with intraday highs near $77.62 and a close at $72.98—a 7 % increase and the largest single‑day gain for both contracts since the 2022 energy shock.
This price spike reflects investor anxiety over escalating regional hostilities. Israel announced strikes on Iranian nuclear and missile facilities, alongside key military installations, in a pre‑emptive operation aimed at disrupting Tehran's nuclear ambitions. Iran retaliated by launching drones and ballistic missiles toward Israel, underscoring the risk of broader conflict. Although no oil infrastructure has been confirmed damaged, analysts warn that the potential for attacks on shipping lanes, such as those near the Strait of Hormuz, could amplify volatility.
Financial markets responded sharply. Middle Eastern equities declined, with Dubai's bourse shedding over 5 % and Abu Dhabi's index down 3.5 % before stabilising. US stock markets also fell: the Dow dropped nearly 770 points, while the S&P 500 and Nasdaq each declined about 1.1 % and 1.3 % respectively. Gold prices and safe-haven Treasuries soared, reflecting investor flight from risk assets.
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Several drivers underpin the market reaction. One is the disruption risk to regional energy flows—nearly a fifth of global oil passes through the Strait of Hormuz. Threats from Iran to close the strait, though seen as unlikely, have triggered fresh concern. The internal dynamics of OPEC+ also play a role: Iran produces some 3.3 million barrels per day, of which more than 2 million are exported. While other OPEC+ nations possess spare capacity that could offset shortfalls, the sudden unrest has introduced a fresh risk premium.
Expert commentary amplifies the outlook. JPMorgan strategists warned that a full-scale conflict could push oil prices above $100, pending a collapse in Iranian exports or a close of the Hormuz corridor. ING's head of commodities referred to the situation as a surge in 'geopolitical uncertainty,' noting a growing risk premium built into market pricing. Meanwhile, Allianz advisor Mohamed El‑Erian cautioned that rising oil prices may stall central banks' rate-cut agendas, complicating inflation control.
For oil-exporting economies such as Iran, Saudi Arabia, Kuwait and Iraq, any disruption in throughput through Hormuz is critical. Rabobank described the chokepoint as 'wholly locked into one tiny passage for exports,' highlighting the fragility of supply security.
Energy and defence sectors saw contrasting market impacts. US energy stocks, especially in Houston, rallied: Occidental led gains, followed by Exxon, Chevron and Phillips 66. Defence giants such as Lockheed Martin, Northrop Grumman and BAE Systems also benefited from heightened geopolitical risk. In contrast, airlines and other fuel-dependent industries took a hit on expectations of higher fuel costs and disrupted travel.
Central banks around the world are watching closely. In the US, worries are growing that the sharp rise in energy costs could elevate inflation, complicating the Federal Reserve's path toward prospective rate cuts. In the eurozone, higher oil costs threaten the European Central Bank's inflation outlook, following earlier cuts in response to lower energy prices.
Market analysts expect high volatility to persist in the short term. Reuters noted that both oil contracts experienced their largest intraday moves since 2022 but stressed that output flows had not yet been disrupted, hinting at a potential cooling if fighting does not intensify. Past flare-ups of Israel‑Iran hostilities, such as those in 2022, produced similar immediate reactions that abated once supply remained intact.
Yet the market remains on edge. Goldman Sachs continues to forecast WTI around $55 by year-end, noting that the current surge reflects risk premium rather than long-term fundamentals. Analysts caution that the situation hinges on two key developments: any direct hit on the Strait of Hormuz or on oil export infrastructure, and the trajectory of military escalation in the region.
