Oil Prices Rise Amid US Airstrikes on Iran
Oil prices increased on Sunday evening as investors considered the ramifications of US airstrikes targeting Iran’s nuclear facilities. This situation adds more geopolitical risks to the energy markets, sparking worries about Middle Eastern oil supply.
International benchmark Brent crude climbed by 5.7%, reaching around $81 per barrel, while West Texas Intermediate saw a rise of 2.4%, trading around $75.60. Both benchmarks surged following the news of the strikes but eased as the market anticipated Iran’s reaction.
On Saturday, President Trump announced that US forces had targeted the nuclear sites at Natanz and Isfahan in Iran. This marked the first direct military engagement by Washington in the ongoing Iran-Israel conflict, with the president warning of further strikes if Iran did not retaliate.
The Iranian government responded cautiously, stating through a state outlet that it had “all options” available. Additionally, the Iranian Congress has moved to consider closing the Strait of Hormuz, a decision that ultimately rests with the nation’s supreme leader and security council. This potential move adds to the already heightened risk in oil markets.
The Strait of Hormuz is crucial, accounting for about a fifth of the world’s crude oil supply. Any disruptions, even brief, could lead to significant supply tightening.
Brent’s contract structure has shown notable shifts, with a spread increase to nearly $2 last month, indicating rising concerns. Furthermore, shipping costs have also escalated.
Analysts suggest that Tehran may retaliate indirectly through local proxies, potentially targeting oil infrastructure in neighboring Gulf nations or intensifying maritime attacks in the Red Sea. A notable incident in 2019 saw Iranian forces strike Saudi Arabia’s ABQAIQ facility, briefly halting about 5% of global oil production.
Currently, Iran’s oil exports, particularly to China, seem unaffected, and shipments from the Hague Island are flowing without major interruption. However, traders remain wary, understanding that strategic disruptions could severely impact global supply.
US officials, including Secretary of State Marco Rubio, have cautioned against Iran closing the strait, describing such an action as “economic suicide.” They emphasize that Iran’s economy and oil exports rely heavily on these waterways.
The oil market’s response largely hinges on Iran’s next steps. If Tehran opts for restraint, much of the risk premium might diminish. However, any moves to close the straits or attack foreign oil facilities could drive prices even higher.
Despite the current geopolitical turmoil, the relatively modest price increase suggests traders are not yet factoring in long-term disruptions to global oil supply or seriously doubting Iran’s restraint.
