Oil prices surge after Israel’s attack on Iran

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Oil prices surged on Friday as Israel’s air strikes against Iran threatened supplies across the region and sparked a rush to haven assets.

Brent crude, the international benchmark, was up 6.5 per cent at $73.89 after earlier spiking more than 12 per cent. West Texas Intermediate, the US benchmark, climbed 6.6 per cent to $2.51.

Michael Alfaro, chief investment officer at Gallo Partners, a hedge fund focused on energy and industrials, said the attack on Iran’s nuclear facilities marked a “seismic escalation” in the conflict.

“We’re staring down the barrel of a prolonged conflict that’s almost certain to keep oil prices elevated,” he said.

Israel’s strikes targeted Iran’s nuclear programme, military facilities and killed its top two commanders. Iran said none of its oil installations were hit in the attack.

Global stock markets fell and gold, a haven asset, jumped. The S&P 500 fell 0.9 per cent and the gold price was up 1.4 per cent at $3,432 a troy ounce.

There are multiple risks for the energy sector from a renewed conflict.

The Strait of Hormuz, the narrow waterway separating Iran from the Gulf states, is a conduit for about a third of the world’s seaborne oil supplies. Iran has repeatedly threatened to close it in the event of an attack.

Some of the world’s largest oilfields, including in Saudi Arabia and Iraq, are also within reach of Iran’s missiles and drones. In 2019 Iran was widely believed to be behind an attack on Saudi Arabian oil facilities that briefly pushed up the price of crude.

Qatar is one of the world’s largest suppliers of liquefied natural gas and its shipments must traverse Hormuz to reach international markets at a time of tight global supplies. 

Helima Croft, a former CIA analyst who is now at RBC Capital Markets, questioned whether the latest strike was a limited military engagement, as occurred in the autumn, or if Iran would target regional energy supplies.

“The key question is whether Iran seeks to internationalise the cost of tonight’s action by targeting regional energy infrastructure,” Croft said.

US President Donald Trump has previously pledged to keep oil prices low to help tame inflation.

After Russia’s full-scale invasion of Ukraine that started in 2022, the Biden administration released about 300mn barrels of crude from the US Strategic Petroleum Reserve, the world’s largest emergency stockpile, to help keep prices in check.

If the oil price surge is prolonged or supplies are disrupted from the Middle East, Trump could use the SPR, but in the past he has criticised former president Joe Biden for draining the reserve to its lowest level in 40 years. The SPR has around 400mn barrels, well below its 727mn barrel capacity.

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Traders will also look for any response from the Opec+ group of oil producers. Saudi Arabia, one of the group’s most powerful members, condemned Israel’s attack on Friday. 

The group, of which Iran is a member, has been raising production in recent months but may face additional pressure from the Trump administration to tap its additional capacity to keep markets well supplied.