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Oil prices soared to their highest level in more than a month on Thursday as traders speculated that Israel could engage in retaliatory strikes against Iran’s oil industry.
Brent crude rose by more than 5 per cent to settle at $77.62 per barrel after US President Joe Biden told reporters that such a move was under discussion in response to Tuesday’s missile attack on Israel by Iran. The rise continued on Friday, with Brent up 1.6 per cent at $78.85.
Asked whether the US would support Israel striking Iran’s oil facilities, Biden said: “We’re in discussion of that,” although in his truncated comment the US president went on to say: “I think that would be a little . . . anyway.”
In recent days, senior US officials have held a series of conversations with top Israeli officials, as the US and western allies try to limit the scope of Israel’s response and prevent a broader regional conflict.
US officials believe Israel’s retaliation will be measured enough to avoid triggering new rounds of escalation across the Middle East.
One US official said Israeli officials want to send a strong signal to Iran while hoping to put a lid on the conflict. The US official cautioned that no final decisions had been made by Israel.
The guarded confidence that Israel will moderate its response comes as Biden and western allies have publicly stated they oppose any strike on Iranian nuclear facilities.
On Thursday, G7 leaders called on Israel and Iran to avoid an “uncontrollable escalation” in the Middle East in a joint statement.
“A dangerous cycle of attacks and retaliation risks fuelling uncontrollable escalation in the Middle East, which is in no one’s interest,” they said.
“We call on all regional players to act responsibly and with restraint. We encourage all parties to engage constructively to de-escalate the current tensions,” the leaders added.
US and Israeli officials have been discussing the potential for Israeli strikes on military targets and energy infrastructure. The US official said Washington did not expect to participate in the strikes.
At the same time, concern is growing among US allies that Washington is struggling to influence the Israeli government led by Prime Minister Benjamin Netanyahu.
One European diplomat said Israel had been asked to stop short of an attack on Iran’s oil or nuclear infrastructure but there was no guarantee the country would meet that request.
A second senior EU diplomat said: “It’s depressing to see how little influence we have on these events . . . It injects some pessimism, some fatalism into our discussions on it.”
On Thursday, Biden denied the US had a veto on Israel’s actions, while adding that no immediate Israeli response was expected on Thursday. “We don’t ‘allow’ Israel. We advise Israel. And there’s nothing going to happen today,” the US president said.
Biden’s comments come amid fears of an expanding war. Israel began a ground invasion of Lebanon on Tuesday after weeks of intense bombing, while maintaining its nearly year-long war in Gaza.
After Tehran fired almost 200 ballistic missiles at Israel on Tuesday evening in retaliation for the attacks on Iran-backed Hizbollah, and the killing of its leader Hassan Nasrallah, Israel vowed to respond.
On Thursday Israel launched multiple air strikes on Beirut, killing at least nine people at a Hizbollah-linked medical facility in the heart of Lebanon’s capital, and targeting a building used by the militant group’s media office.
The US’s stated goal for months has been to broker a ceasefire deal between Israel and Hamas that would end the war in Gaza, and recently it has been pushing for a truce between Israel and Lebanon as well. But both those efforts have broken down.
This week, Kurt Campbell, deputy US secretary of state, acknowledged “moments of surprise” over recent months in the relationship between the US and Israel. But, speaking at a virtual event hosted by the Carnegie Endowment for International Peace, he acknowledged “major efforts on both sides to keep lines of communication open and to make sure that perspectives are understood”.
West Texas Intermediate, the US oil marker, also jumped following Biden’s comments, settling at $73.71 on Thursday, up 5.2 per cent. It climbed to $74.84 on Friday.
Iran exports around 1.6-1.8mn barrels per day of crude and condensate, of which 1.5mn b/d goes to China, along with more than 0.5mn b/d of oil products, according to Energy Aspects, a consultancy.
Amrita Sen, director of research at Energy Aspects, said oil prices could be sent “spiralling higher” if Israel struck Iranian refineries and if Tehran responded by attacking other oilfields and refineries in the region.
The global oil market has been volatile since the start of the week due to the escalating tensions, with potential disruptions to energy exports.
However, lack of demand from China, as well as Opec+ producers sitting on more than 5mn b/d of spare capacity which could be used if Iranian supply were cut, had weighed on the market.
Additional reporting by Rafe Uddin and Shotaro Tani in London, and Myles McCormick in Houston
Satellite visualisation by Hirofumi Yamamoto and Steven Bernard