Oil prices surged on Tuesday following Iran’s missile attack on Israel, raising concerns that the Middle East could be heading toward a full-scale regional conflict that might disrupt global energy supplies.
Brent crude, the international benchmark, soared as much as 5% to $75.40 a barrel during intraday trading, while the U.S. benchmark West Texas Intermediate also increased by 5% to $71.84 a barrel.
This sharp rise came as traders and analysts cautioned about potential disruptions to energy exports if the violence escalates, putting critical energy infrastructure at risk in a region responsible for about one-third of the world’s oil production.
“Iran controls some of the world’s most strategically important energy regions and transit chokepoints,” stated Bob McNally, founder of Rapidan Energy Group and a former adviser to President George W. Bush. “When Iran engages in conflict with its neighbors, the risk of geopolitical disruption, especially involving Israel, must be taken into account.”
Iran, a key OPEC member that exports approximately 1.7 million barrels of oil per day, threatened further “devastating” attacks on Israel following the missile strike.
Helima Croft, an analyst at RBC Capital Markets and former CIA analyst, emphasized that traders must now consider whether Israel will retaliate against Iran’s military and energy infrastructure. Croft noted that while Israel has previously exercised restraint, recent actions by Prime Minister Netanyahu’s government indicate a growing tolerance for high-risk operations.
In addition to its oil exports, Iran controls access to the Strait of Hormuz, a crucial shipping route for Gulf oil and gas producers, including Saudi Arabia and the UAE. Iran has previously threatened vessels transiting this chokepoint.
The attack coincided with Israeli forces entering Lebanon after days of bombardment, which included the killing of Hezbollah’s leader, a significant Iranian ally in the region.
While oil prices remained below the $92 per barrel mark reached following Hamas’s attack on Israel in October 2023, Tuesday’s spike reflected increasing concerns about the potential for further conflict.
As the U.S. pledged support for Israel and bolstered its military presence in the region, oil prices retreated slightly later in the day. Brent settled up 2.5% at $73.56 per barrel, with minimal damage reported after Iran’s attack.
“This escalation is significant and accounts for the initial spike in oil prices,” remarked Bill Farren-Price, senior research fellow at the Oxford Institute for Energy Studies. “However, for a sustained rally, the conflict would need to extend to the Gulf, which hasn’t occurred yet.”