Oil Prices Surge Nearly 9% Following Israeli Strikes on Iran

Overview:

Oil prices experienced a significant increase of nearly 9% on Friday, reaching near multi-month highs due to Israeli military actions against Iran, which have raised concerns about potential disruptions in Middle Eastern oil supplies.

Market Impact:

Brent crude futures climbed by $6.19, or approximately 8.9%, to settle at $75.55 per barrel at 1019 GMT, following an intraday peak of $78.50—the highest level since January 27. Similarly, U.S. West Texas Intermediate crude rose by $6.22, or 9.1%, reaching $74.26, after hitting $77.62, the highest since January 21. These moves represent the largest intraday fluctuations for both contracts since 2022, coinciding with heightened energy prices following Russia’s invasion of Ukraine.

Geopolitical Context:

Israel has confirmed that its strikes targeted Iran’s nuclear facilities, ballistic missile factories, and military leaders, marking the initiation of a prolonged operation aimed at thwarting Tehran’s nuclear ambitions. In response, Iran has vowed to deliver a strong retaliation.

Regional Oil Supply Stability:

The National Iranian Oil Refining and Distribution Company reported that its oil refining and storage facilities remain operational and unaffected by the strikes. Analysts are particularly focused on the potential impact on the Strait of Hormuz—a critical waterway through which approximately 20% of the world’s oil supply (around 18 to 19 million barrels per day) transits. SEB analyst Ole Hvalbye noted that regional volatility has previously threatened this route, but so far, it has remained stable.

Market Analysis:

Consultancy Sparta Commodities indicated that significant disruptions to crude supply could result in sour crude grades being priced out of refineries in favor of lighter varieties. In a worst-case scenario, JPMorgan analysts warned that closures of the Strait or retaliatory actions from major oil-producing nations could drive prices as high as $120-130 per barrel, nearly double their base case forecast.

Future Outlook:

Janiv Shah, an analyst at Rystad, commented on the sustainability of the current oil price rally, suggesting that while the likelihood of a full-scale war appears low, resistance to the rally may emerge. He noted that nearly all Iranian oil exports are directed toward China, making discounted purchases from China particularly vulnerable. OPEC+ spare capacity may serve as a stabilizing factor in the market.

Broader Market Trends:

In other financial markets, stocks declined, prompting investors to seek refuge in safe-haven assets such as gold and the Swiss franc. Increased oil prices are expected to negatively impact the German economy, which has recorded no growth for two consecutive years, according to the DIW Berlin economic institute.

Analysts at Commerzbank highlighted that the prevailing uncertainty suggests a higher risk premium on oil prices, making it unlikely for prices to dip below $70 on a sustained basis in the near future, as fundamental data takes a backseat in the current geopolitical climate.