Global oil prices soared for the second consecutive day after Iran launched 200 ballistic missiles at Israel, prompting a vow of retaliation from Israeli Prime Minister Benjamin Netanyahu. This escalation has intensified concerns about potential disruptions in crude oil supplies, particularly as the Middle East is responsible for nearly one-third of the world's oil production.
Brent Crude Reaches New Heights
Brent crude, the global oil benchmark, surged beyond $74 per barrel after briefly spiking by more than 5% following the Iranian assault. West Texas Intermediate (WTI), the U.S. oil benchmark, also climbed, nearing $71 per barrel. Despite these increases, both Brent and WTI remained below their previous peaks.
Risk Premiums and Safe Haven Assets Surge
Investors are increasingly pricing in a renewed risk premium on oil, a crucial global commodity. The attack has also driven up the value of safe haven assets such as bonds, gold, and the U.S. dollar as the risk of further conflict in the region looms large.
Historical Context and Current Conflict
The conflict between Israel and Iran dates back to the outbreak of the Gaza war nearly a year ago, where Tehran-backed Hamas has been at the center of hostilities. Despite this long-standing conflict, oil price spikes due to tensions have historically been short-lived unless accompanied by direct disruptions to oil production. In August 2024, Iran was producing approximately 3.4 million barrels of oil per day, according to OPEC.
Potential Impact on Energy Infrastructure
Experts warn that energy infrastructure could become a target in this escalating conflict. RBC Capital Markets notes that Iran's Kharg Island export facilities could be at risk, and Iran and its allies might attack energy installations to internationalize the conflict if it intensifies.
Middle East Tensions Heightened by Hezbollah Chief's Death
The situation in the Middle East has further escalated after the killing of Hezbollah's leader, Hassan Nasrallah, which prompted Israeli airstrikes on Beirut. In response, Israeli troops have initiated targeted ground raids in Lebanon. Hezbollah, like Hamas, is backed by Tehran, and the possibility of these proxy conflicts expanding is increasing.
Statements from Leaders
Following the missile attack, Iran's Foreign Minister Abbas Araghchi stated that their action was concluded unless Israel retaliates further. Netanyahu responded with a strong statement, asserting that Iran had made a grave mistake and would face consequences.
Future of Oil Prices
Analysts from ANZ Group Holdings suggest that any sustained rally in oil prices will depend on whether Israel responds with a direct military strike on Iran, particularly targeting its military, infrastructure, or oil industry.
OPEC+ Meeting
OPEC+ is scheduled to hold an online meeting to review global oil markets. The group is expected to discuss reviving some of its idled production starting in December, after previously delaying the plan.
In the U.S., the American Petroleum Institute reported a 1.5 million barrel decline in nationwide crude inventories, marking the third consecutive weekly drop if confirmed by official figures.
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