Oil prices rose on Wednesday following Iran's missile attack on Israel but later pulled back as traders assessed the potential impact of the escalating conflict on global energy supplies. Brent crude, the international benchmark, initially surged to $76.14 before retreating to $73.84, ultimately closing slightly higher. Meanwhile, U.S. benchmark West Texas Intermediate edged up 0.4% to $70.12 per barrel.
Traders and analysts warned that ongoing violence in the Middle East could disrupt energy exports, given that the region accounts for about one-third of global oil production. Bob McNally, founder of Rapidan Energy Group and former adviser to President George W. Bush, emphasized Iran's strategic significance due to its control over critical energy infrastructure and transit chokepoints. “When Iran is involved in a shooting war with its neighbors, geopolitical disruption risks must be considered,” he stated.
In response to the missile attacks, Israeli Prime Minister Benjamin Netanyahu pledged retaliation. Iran, an OPEC member that exports approximately 1.7 million barrels of oil daily, threatened further “devastating” strikes if Israel retaliated.
Helima Croft, an analyst at RBC Capital Markets and former CIA analyst, indicated that oil traders should evaluate whether Israel might target Iranian military and economic assets, including energy infrastructure. Croft noted that while Israel had previously shown restraint in response to attacks, the current government appears more willing to escalate the situation.
Historically, oil prices spiked over 30% during Israel's 2006 ground offensive in Lebanon, reaching a then-record $78 per barrel. Analysts express concerns that a similar scenario could unfold if an all-out war disrupts supply chains again. However, OPEC+ producers currently have more than 5 million barrels per day of spare capacity, which could mitigate any disruption to Iranian output.
After a meeting on Wednesday, OPEC+ reaffirmed its commitment to gradually restore 2.2 million barrels per day of supply by December, while closely monitoring market conditions. Analysts also cautioned that the Strait of Hormuz, a critical transit route for OPEC+ members like Saudi Arabia and the UAE, could face disruptions if the conflict escalates.
The missile attack coincided with Israeli forces entering Lebanon after days of bombardment, which included a strike that killed the leader of Hezbollah, an Iranian proxy. The U.S. has announced preparations to defend Israel, recently increasing its troop presence in the region and conducting strikes in Yemen, Iraq, and Syria.
Bill Farren-Price, senior research fellow at the Oxford Institute for Energy Studies, remarked, “This fresh escalation is serious and justifies oil’s increase.” However, he cautioned that unless the conflict spreads to the Gulf, a sustained rally in oil prices may not occur.
