Oil Prices Surge Amid Middle East Tensions Following Israeli Strikes on Iran

Oil prices experienced a significant increase of almost 9% on Friday, reaching levels not seen in several months, a response to escalating military actions between Israel and Iran. Brent crude futures rose by $6.19, approximately 8.9%, settling at $75.55 a barrel, with an intraday peak at $78.50, the highest price since late January. Similarly, U.S. West Texas Intermediate crude saw a jump of $6.22, or 9.1%, to $74.26 after touching $77.62, the highest since late January as well.

This surge marked the largest intraday price movements for both crude contracts since the turbulent days following Russia's invasion of Ukraine in 2022. Israel's escalation involves targeted strikes on Iran's nuclear installations and military assets, which it claimed are vital to preventing Iran from developing nuclear weapons, while Iran has promised retaliation. U.S. President Donald Trump has called upon Iran to negotiate regarding its nuclear ambitions to avert further conflicts.

Despite these developments, the National Iranian Oil Refining and Distribution Company reported that its refining and storage facilities remained intact and operational. Analysts noted that the main concern lies in potential disruptions to the Strait of Hormuz—a crucial maritime route for global oil transport, carrying over 18 to 19 million barrels of oil daily.

Market analysts suggest that if significant supply disruptions were to occur, it could lead to alterations in how refineries price crude grades. In a severe scenario, JPMorgan analysts warned that a strategic closure of the strait or aggressive responses from oil-producing nations could propel oil prices to between $120 and $130 a barrel, nearly doubling current forecasts.

In light of these uncertainties, analysts are divided on the longevity of the oil price surge, with some suggesting a lower likelihood of a total war, which would limit the duration of the price rally. Moreover, the ongoing trade dynamics, particularly concerning Iranian oil exports to China, could be influenced.

Meanwhile, as oil prices rise, stock markets declined, prompting investors to flock to safer assets like gold and the Swiss franc. The rise in oil prices could also adversely affect economic growth in countries such as Germany, which has struggled with stagnation in recent years. Analysts at Commerzbank indicated that the prevailing uncertainty adds a risk premium to oil prices, making it unlikely for them to drop below $70 for the foreseeable future, even as fundamental market data takes a backseat.