Oil prices climbed once more on Wednesday following Iran’s missile strike on Israel, but later eased as traders evaluated whether the intensifying Middle East conflict would affect global energy supplies.
Brent crude, the global oil benchmark, surged to $76.14 before retreating to $73.84, reflecting a modest daily gain.
Meanwhile, U.S. benchmark West Texas Intermediate saw a 0.4 percent increase to $70.12 per barrel. Concerns emerged among market analysts and traders about possible disruptions to energy exports if the conflict escalates, given that the Middle East region accounts for around a third of the world’s oil production.
The Financial Times reported that Bob McNally, founder of Rapidan Energy Group and former advisor to US President George Bush, emphasised Iran’s critical role in the global energy landscape.
“Iran is situated in one of the world’s most critical energy hubs, with oil and gas facilities and key transport routes,” McNally noted. “Any conflict involving Iran, especially one involving Israel, raises the risk of geopolitical disruptions.”
Tensions flared as Israeli prime minister Benjamin Netanyahu vowed to respond to the missile attacks, with Iran warning of further, more severe strikes if Israel retaliates.
Iran, a member of OPEC, exports about 1.7 million barrels of oil daily and has threatened additional action following Tuesday’s missile barrage.
Helima Croft, a strategist at RBC Capital Markets and a former CIA analyst told Financial Times that traders are now assessing the potential for Israel to directly target key Iranian infrastructure, including oil assets.
“Israel’s response in April to earlier Iranian attacks was measured, but recent actions by Netanyahu’s government suggest a growing tolerance for higher-risk military strategies,” Croft explained.
The memory of oil prices skyrocketing over 30% following Israel’s 2006 ground offensive into Lebanon is still fresh, where concerns of an expanded conflict caused prices to surge to a then-record $78 per barrel.
Currently, OPEC+ producers have around 5 million barrels per day in spare capacity due to recent production cuts, which could be tapped if Iranian exports were disrupted.
Following a meeting on Wednesday, OPEC+ reiterated its commitment to gradually restoring 2.2 million barrels per day of supply over the coming 12 months, while closely monitoring market dynamics.
Iran’s strategic importance isn’t limited to its oil production; its proximity to the Strait of Hormuz, a key passage for OPEC+ producers like Saudi Arabia and the UAE, means that any disruption in shipping could hinder these countries’ ability to compensate for a drop in Iranian supply.
Market experts are also concerned about the potential spillover into broader Gulf shipping routes, which could further tighten global oil markets.
Iran’s missile strike on Israel occurred amid Israeli military operations in Lebanon, with recent escalations including a missile attack that killed Hizbollah’s leader, one of Iran’s regional allies.
The United States has responded by bolstering its military presence in the region, preparing to defend Israel and prevent further conflict escalation. US forces have already launched strikes in Yemen, Iraq, and Syria as part of a broader effort to contain regional tensions.
Bill Farren-Price, an oil market expert and senior research fellow at the Oxford Institute for Energy Studies, also shared his insights on the latest developments with the Financial Times.
“The recent spike in oil prices is understandable given the seriousness of the situation, but we’ve seen similar episodes before,” he said. “For a prolonged oil price rally, the conflict would need to spread more significantly, especially into the Gulf region. So far, that hasn’t happened.”