Analysts have projected a surge in global oil prices on Monday following Iran’s recent attack on Israel, which occurred over the weekend. However, the extent of further price increases may hinge on the responses from Israel and Western nations.
Iran’s launch of explosive drones and missiles at Israel late on Saturday, in retaliation for a suspected Israeli attack on its consulate in Syria earlier this month, has heightened concerns about a broader regional conflict. This direct attack on Israeli territory marked a significant escalation, prompting fears among market observers.
Last week, the anticipation of a potential Iranian response to the strike on its embassy compound in Damascus had already bolstered oil prices. Global benchmark Brent crude reached $92.18 a barrel on Friday, its highest level since October. Similarly, U.S. West Texas Intermediate crude futures rose to $85.66. With trading closed on Sunday, analysts anticipate a further uptick in prices when trading resumes.
While there has been no immediate impact on production, Iran has indicated that the matter could be considered resolved. However, the sustainability of any price rally depends on whether there are significant disruptions to the region’s oil supply.
US President Joe Biden has announced plans to convene a meeting of leaders from the Group of Seven major economies to coordinate a diplomatic response to the Iranian attack. The market will closely monitor the outcome of this meeting, as well as Israel’s response to the aggression.
Iran’s recent increase in oil exports, a key source of revenue for the country, has drawn attention. Under the Biden administration, Iranian exports have risen sharply compared to the previous administration’s policies. The Biden administration maintains that it is not encouraging Iran to increase exports and continues to enforce sanctions.
However, any reduction in Iranian exports could lead to further spikes in oil prices and gasoline costs in the U.S., which is a sensitive issue ahead of the upcoming elections.
Additionally, attention is focused on the potential impact on shipping through the Strait of Hormuz, a vital route through which about a fifth of the world’s total oil consumption passes daily. Iran has previously threatened to close the strait if deemed necessary, and recent incidents involving Iranian forces boarding vessels have raised concerns about disruptions to shipping routes.
Crude prices already include a risk premium, and any further widening of this premium will largely depend on developments in the vicinity of Iran and the Strait of Hormuz. As tensions continue to escalate in the Middle East, market participants remain on high alert, monitoring geopolitical developments that could significantly impact oil markets globally.
