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Oil prices surged on Tuesday after Iran fired a barrage of missiles at Israel, inching the Middle East closer to a full-scale regional war traders fear could disrupt energy supplies to the global market.
Brent crude, the international benchmark, rose as much as 5 per cent to $75.40 a barrel in intraday trading on Tuesday. US benchmark West Texas Intermediate was also up 5 per cent to $71.84 a barrel.
The rally came as traders and analysts warned of potential disruption to energy exports if the violence in the Middle East widened, saying energy infrastructure across a region that accounts for about a third of global oil production could be at risk.
“Iran sits astride the world’s most strategic energy region, oil- and gas- production facilities and transit choke points,” said Bob McNally, founder of Rapidan Energy Group and a former adviser to president George W Bush.
“So, when Iran is involved in a shooting war with its neighbours, you have to price in some geopolitical disruption risk, especially when it comes to Israel,” he added.
Iran, an Opec member which exports about 1.7mn barrels of oil per day, on Tuesday warned Israel of more “devastating” attacks if it responded to the missile barrage.
Helima Croft, an analyst at RBC Capital Markets and a former CIA analyst, said oil traders needed to assess whether Israel would retaliate by directly targeting critical Iranian military and economic assets, including energy infrastructure.
“In April, the Israelis opted for a muted response to the Iranian
missile and drone strikes. And yet in the past two weeks the [government of Israeli Prime Minister Benjamin Netanyahu] has demonstrated an increasingly high-risk tolerance for escalatory actions to achieve their strategic objectives.”
Aside from its significance as a global oil exporter, Iran also borders the Strait of Hormuz, the narrow chokepoint through which Gulf oil and gas producers including Saudi Arabia, Qatar, Kuwait and the United Arab Emirates export energy, and has previously menaced vessels in the seaway.
Iran’s attack came as Israeli forces moved into Lebanon after days of bombardment, including a missile strike on Friday that killed the leader of Hizbollah, one of Tehran’s proxies in the region.
Oil prices are below the $92 a barrel price hit after Hamas’s attack on Israel on October 7 last year, the trigger for almost 12 months of conflict.
Earlier on Tuesday the US said it was making preparations to defend Israel. Washington has already ordered more troops to the region in a bid to deter further escalation. The US has also struck targets in Yemen, Iraq and Syria in recent months.
After Iran’s attack on Israel passed with minimal damage reported, oil prices retreated from their intraday highs, with Brent settling up 2.5 per cent at $73.56 a barrel on Tuesday.
“This fresh escalation is serious and justifies oil’s jump,” said Bill Farren-Price, a veteran oil market watcher and senior research fellow at the Oxford Institute for Energy Studies.
“But we’ve been here before — the conflict needs to show signs of spreading to the Gulf if it is to ignite a broader and sustained oil price rally. At the moment it has not.”