Oil Spikes as Israeli Attacks on Iran Stoke Fears of Wider War
(Bloomberg) -- Oil surged as much as 13% after Israel carried out waves of military strikes against Iran, raising fears of a wider war in a region that accounts for a third of global crude production.
Brent topped $78 a barrel in the biggest intraday gain since March 2022, following Russia’s invasion of Ukraine. Prompt timespreads jumped and the shape of the futures curve pointed to fears of a long drawn-out conflict, while volatility surged. Gold was a beneficiary as investors flocked to havens, rising as much as 1.7% to near a record.
Israeli Prime Minister Benjamin Netanyahu said the attacks targeted Tehran’s nuclear program and military, and would last until the threat was removed. Iran vowed to make a severe response, with Supreme Leader Ayatollah Ali Khamenei saying several commanders and scientists had been killed.
“We are back in an environment of heightened geopolitical uncertainty, leaving the oil market on tenterhooks and requiring it to start pricing in a larger risk premium for any potential supply disruptions,” said Warren Patterson, head of commodities strategy at ING Groep NV.
Oil’s rapid ascent erased year-to-date losses that had been driven by the fall-out from elevated global trade tensions, and a decision by OPEC+ to revive shuttered capacity at a faster-than-expected clip. This week, JPMorgan Chase & Co. warned that prices could reach $130 a barrel in a worst-case scenario in the Middle East.
Brent’s prompt timespread — the difference between its two nearest contracts — pushed deeper into backwardation. The gap was $1.73 a barrel, up from 92 cents on Thursday. Another metric, the spread between this December’s contract and the same month in 2026, jumped above $2, up from 50 cents. Volatility in oil options surged to a three-year high.
Iranian TV reported that smoke was seen near the Tabriz refinery, although National Iranian Oil Refining and Distribution Co. said the attacks didn’t cause any damage to the country’s oil refinery facilities and storage tanks, according to the state-run IRNA news agency.
A sustained gain in energy costs may fan global inflation, complicating the tasks facing central bankers including at the US Federal Reserve as policymakers navigate the fallout from the US-led trade war.
While the market’s over-riding concern will be that supplies could be interrupted as hostilities escalate, OPEC+ members, including de facto group leader Saudi Arabia, still have abundant spare capacity that could be activated. In addition, the International Energy Agency may choose to coordinate the release of emergency stockpiles to try and calm prices.
Strait of Hormuz
“OPEC+ spare capacity has the potential to deal with loss in Iran production,” said Mukesh Sahdev, head of commodities markets — oil at Rystad Energy A/S. Still, potential retaliation by Tehran, including a possible blockage of the Strait of Hormuz, could make using spare capacity a challenge, he added.
The Strait of Hormuz is a narrow waterway at the mouth of the Persian Gulf that handles about a quarter of the world’s oil trade. Over the years, Iran has repeatedly targeted merchant ships traversing the choke point, and has even threatened to block the strait in the past.
Ahead of the Israeli strikes, the US and Iran had been scheduled to hold a sixth round of nuclear talks in Oman on Sunday, although the status of the negotiations is now unclear. In recent days, President Donald Trump said he was less confident that the US would reach a deal with Tehran to curb its nuclear ambitions in exchange for sanctions relief.
The US was not involved in the strikes, Secretary of State Marco Rubio said. It had ordered some staff to leave its embassy in Baghdad earlier this week after Tehran threatened to strike American assets in the region if it was attacked. In addition, the State Department said US government employees and family members in Israel were restricted from traveling outside cities.
“The risk appetite of oil investors will likely be tested today, with immense volatility and uncertainty,” said Priyanka Sachdeva, a senior market analyst at Phillip Nova Pte. The worsening conflict raises the risk of disruptions to oil supplies, as well as contagion, she said.
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