Oil surges as Israel vows retaliation after Iran attack

(Bloomberg) — Oil rose for a second day after Iran fired about 200 ballistic missiles at Israel, drawing a vow of retaliation from Prime Minister Benjamin Netanyahu and raising risks to crude supplies in the region.

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Global benchmark Brent climbed above $75 a barrel after briefly rising more than 5% on Tuesday after the Iranian attack, which was preceded by a warning from the US. Options volatility rose to an 11-month high as traders hedged against the possibility of higher oil prices.

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Crude’s advance reflects investors pricing in a renewed risk premium for the world’s most important commodity, given that the Middle East accounts for about a third of global supplies. Haven assets, including bonds, gold and the US dollar, also rose on the latest escalation in the conflict.

Although Israel and Iran have clashed since the Gaza war against Tehran-backed Hamas broke out nearly a year ago, previous spikes have been short-lived in the absence of actual disruptions to oil production. Iran pumped about 3.3 million barrels per day in September, according to a Bloomberg survey.

“While the geopolitical risk premium increased on Tuesday, our instruments suggest that this premium remains moderate,” Goldman Sachs analysts, including Yulia Zhestkova Grigsby, wrote. “As a result, oil prices remain sensitive to supply disruption risks.”

Iran and Israel traded attacks earlier this year, with Tehran firing a barrage of rockets and drones in April that was alerted in advance and caused little damage. It was followed a few days later by a limited Israeli retaliatory strike against Iran. For the week, oil ended more than 3% lower.

While many participants have “mitigated the risk” of supply disruptions, energy infrastructure could become a target for both sides, RBC Capital Markets LLC said in a note. Tehran and its proxies “could target energy operations elsewhere in the region to internationalize costs if the current crisis turns into an all-out war,” it added.

Meanwhile, later on Wednesday, OPEC+ is scheduled to hold an online meeting of a technical group – the Joint Ministerial Monitoring Committee – to review global oil markets. The group is preparing to revive some of its dormant production from December after initially delaying that plan.

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–With assistance from Weilun Soon.

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