Oil Market Get Fresh Injection of Uncertainty After US Strikes Iran
(Bloomberg) -- US strikes on Iran over the weekend have added to risks for global oil supply, which has so far been unaffected by some of the most extreme military actions in the Middle East in years.
Brent crude jumped early on Monday to trade above $80 a barrel for the first time since mid-January after US President Donald Trump said air attacks had “obliterated” Iran’s three main nuclear sites. Prices then pared much of that gain, as the vital Strait of Hormuz remained open to tankers.
Analysts are now trying to weigh the increased geopolitical risk against previous fears that strong production and a lukewarm global economy could result in a supply glut. Here’s what oil watchers are saying:
Rapidan Energy Group
Iran will likely be very cautious about disrupting Hormuz, the narrow passage separating Iran and the Arabian peninsula through which about 25% of the world’s oil and 20% of global liquefied natural gas must pass, said Bob McNally, president and founder of Rapidan Energy Group and a former White House energy official.
“Traders are holding their breath, waiting to see if Israel or Iran expand this conflict beyond military and political targets into traded energy,” McNally said on Bloomberg Television. “So far, no one has pulled that trigger. And if they don’t, I can see the price reversing.”
Kpler
Iran has other options for retaliation, including using its regional proxies to disrupt global trade flows more indirectly, according to Kpler Ltd. senior crude analyst Muyu Xu . That’s what happened after Israel’s invasion of the Gaza strip in 2023, when Houthi rebels in Yemen began attacking ships in the Red Sea. A direct move to disrupt Middle East oil flows would have severe consequences for prices, she said.
“If Iran blocks the Strait of Hormuz, even for one day, oil can temporarily hit $120 or even $150 a barrel,” she said. “And if it attacks major oil production or export facilities in neighboring countries, it may drive up prices higher for longer.”
Vanda Insights
Oil markets have been incredibly choppy since Israel began strikes on Iranian nuclear infrastructure earlier this month, with some trading sessions beginning with price spikes before they retreated into daily losses. Traders need to look past the surprise of the news and analyze whether the underlying risks have actually changed, said Vandana Hari, founder of consultancy Vanda Insights.
“Beyond the knee-jerk reaction to the shock US attacks, the market needs to assess if the risk of the worst-case supply disruption scenarios has risen,” Hari said. “I don’t see a material increase.”
Onyx Commodities
Long-time oil market hand Harry Tchilinguirian said he’s particularly watching whether Iran risks pulling the US deeper into the conflict by responding with strikes on American military assets or energy infrastructure in the region, which could drive prices higher. If the response is confined to Israel, that could reduce fears of escalation.
“Basically, the ball is now in Iran’s court to respond, and while it says all options are on the table, some are more consequential than others,” said Tchilinguirian, head of oil research and analytics for Onyx Commodities Ltd.
Sparta Commodities
It’s not just crude oil that faces risk. The Strait of Hormuz is also a major chokepoint for LNG and refined products including diesel and jet fuel. Some fuel markets may see the biggest price responses to the latest development, said June Goh, senior oil market analyst with Sparta Commodities.
Diesel and jet fuel supply chains are most exposed to the Middle East as oil products from the Arab Gulf flow through Hormuz to feed the main demand hub in Europe, Goh said. “The east-west spread for middle distillates is expected to widen further to incentivize barrels to flow into Western markets.”
Saxo Bank
Even without a full-scale disruption, the threat of Iranian action in the strait could hamper shipments, said Ole Hansen, head of commodity strategy for Saxo Bank A/S. Such delays could lead to short-term price spikes, but gains would be capped after countries released strategic reserves, and Saudi Arabia and the United Arab Emirates redirected some crude to facilities outside Hormuz.
“The current geopolitical risk premium — now exceeding $10 a barrel — cannot be sustained for long without a tangible supply disruption,” Hansen said. “Absent that, price gains may struggle to hold.”
RBC Capital Markets
Iran has options for retaliation beyond attempting to fully shut the strait, such as strikes on tankers or the port of Fujairah in the UAE, or exerting pressure on remaining allied groups in Iraq and Yemen to assist, said RBC Capital Markets LLC analysts including Helima Croft. It may take days or even weeks to comprehend the nation’s full response.
“Above all, we would caution against the knee-jerk ‘the worst is behind us’ hot take at this stage,” Croft said. “President Trump may indeed have successfully executed an ‘escalate to de-escalate’ move, but a wider expansion cannot still be ruled out at this juncture.”
(Updates with comments from Saxo and RBC. A previous version was corrected to remove a reference to Indian product flows.)
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