Energy flows from the Middle East are not expected to be disrupted by rising tensions

Investing.com — Rising tensions in the Middle East following an Iranian airstrike on Israel will not lead to sustained disruptions to energy flows from the oil-rich region, analysts at UBS predicted.

However, in a note to clients on Wednesday, analysts signaled that the long-running regional conflict had contributed to earlier periods of market volatility as investors worried about possible oil supply constraints.

Iran said its military barrage on Israel — the country’s largest ever — had ended, but warned it would resume the attack if there were new provocations.

Israel could launch a “significant” response in the coming days that could target Iran’s oil production facilities and other strategic sites, according to US news site Axios.

Israeli Prime Minister Benjamin Netanyahu vowed retaliation for Tehran’s airstrikes, saying in a statement on Tuesday that Iran had “made a big mistake” and “will pay for it.”

The US also said there would be “serious consequences” for Tehran’s actions, with Defense Secretary Lloyd Austin adding that Washington was “well placed” to defend its interests in the Middle East.

Iran’s attack was triggered by Israel’s recent attacks on Hezbollah in Lebanon, as well as the ongoing war in Gaza, Tehran said. The US, UN and European Union called for a ceasefire in Lebanon, but fighting continued there on Wednesday morning.

UBS analysts said that while the situation has the potential to deteriorate further, they expect it to “stop short of an all-out war between Israel and Iran, including their respective allies.”

But if a wider war breaks out in the region, they warned that disruptions to oil supply routes through the critical Strait of Hormuz or damage to key oil infrastructure could push prices above $100 a barrel for weeks.

Oil prices rose on Wednesday, adding to gains of more than 5 percent in the previous session, which were fueled by Iran’s attack on Israel.

By 03:43 ET, Brent was up 2.6% at $75.50 a barrel, while U.S. crude futures (WTI) were trading 2.8% higher at 71 $.80 per barrel.