Oil prices rise as Iran missile attack sparks supply fears

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Oil prices rose on Tuesday after Iran launched a missile barrage on Israel, pushing the Middle East closer to a full-scale regional war that traders fear could disrupt global energy supplies.

Brent crude, the international benchmark, rose as much as 5 percent to $75.40 a barrel in intraday trading on Tuesday. U.S. benchmark West Texas Intermediate also rose 5 percent to $71.84 a barrel.

The rally came as traders and analysts warned of a potential disruption to energy exports if violence in the Middle East flared, saying energy infrastructure in a region that accounts for about a third of global oil production could be in danger.

“Iran sits next to the world’s most strategic energy region, oil and gas production facilities and transit points,” said Bob McNally, founder of Rapidan Energy Group and former adviser to President George W. Bush.

“So when Iran is involved in a war with its neighbors, you have to appreciate a risk of geopolitical disruption, especially when it comes to Israel,” he added.

Iran, an OPEC member that exports about 1.7 million barrels of oil a day, warned Israel on Tuesday of more “devastating” attacks if it responded to the missile barrage.

Helima Croft, an analyst at RBC Capital Markets and a former CIA analyst, said oil traders need to assess whether Israel will retaliate by directly targeting critical Iranian military and economic assets, including energy infrastructure.

“In April, the Israelis opted for a muted response to Iran
missile and drone strikes. And yet, over the past two weeks, (Israeli Prime Minister Benjamin Netanyahu’s government) has demonstrated an increasing risk tolerance for escalating actions to achieve its strategic goals.”

In addition to its significance as a global oil exporter, Iran also borders the Strait of Hormuz, the narrow point through which Gulf oil and gas producers including Saudi Arabia, Qatar, Kuwait and the United Arab Emirates export energy, and has previously threatened ships from maritime road.

Iran’s attack came as Israeli forces moved into Lebanon after days of shelling, including a missile strike on Friday that killed the leader of Hezbollah, one of Tehran’s proxies in the region.

Oil prices are below the $92 a barrel price hit after the Hamas attack on Israel on October 7 last year, triggering nearly 12 months of conflict.

Earlier on Tuesday, the US said it was preparing to defend Israel. Washington has already ordered more troops to the region in an attempt to deter further escalation. The US has also hit targets in Yemen, Iraq and Syria in recent months.

After Iran’s attack on Israel passed with minimal reported damage, oil prices retreated from their intraday highs, with Brent settling 2.5% higher at $73.56 a barrel on Tuesday.

“This new escalation is serious and justifies the jump in oil,” said Bill Farren-Price, a veteran oil market watcher and senior research fellow at the Oxford Institute for Energy Studies.

“But we’ve been here before – the conflict must show signs of widening in the Gulf if it is to trigger a broader and sustained rise in oil prices. At the moment he hasn’t.”