Oil market analysts are currently evaluating a significant threat to crude supply following Iran’s ballistic missile attack on Israel, which has intensified existing conflict in the Middle East.
On Tuesday, Iran executed the strike on Israel in retaliation for the recent killings of Hezbollah leader Hassan Nasrallah and an Iranian commander in Lebanon. Analysts have indicated that Israeli countermeasures may soon target Iranian oil infrastructure.
According to Saul Kavonic, a senior energy analyst at MST Marquee, “The Middle East conflict may finally impact oil supply,” emphasizing that a substantial disruption to oil supply seems imminent. Kavonic noted that this development could alter market dynamics after a period of what he described as “geopolitical risk fatigue,” where traders previously discounted the threats of supply disruptions due to conflicts in the Middle East and Ukraine.
Kavonic estimates that up to 4% of the global oil supply is at risk as the conflict now directly involves Iran. He also posited that any attack or increased sanctions could potentially drive oil prices back to $100 per barrel.
The missile attack on Israel followed the deployment of Israeli ground troops into southern Lebanon, escalating operations against Hezbollah, the Iran-backed militant group. Most of the 200 missiles launched were intercepted by Israeli and U.S. defense systems, and there were no reported fatalities in Israel resulting from the attack.
Subsequent to Iran’s missile strikes, oil prices surged over 5% before stabilizing at a 2% increase. Brent crude, the global benchmark, traded 1.44% higher at $74.62 a barrel, while U.S. West Texas Intermediate futures rose 1.62% to $70.95 per barrel.
Bob McNally, president of Rapidan Energy Group, observed that the conflict’s shift in focus from Gaza to Lebanon and Iran marks a new, more energy-centric phase of the war. He anticipates that Israel’s retaliation for the missile attack will be substantial.
Andy Lipow, president of Lipow Oil Associates, noted that the oil market has been relatively stable despite the armed conflict between Israel and Hamas that began last October. He attributed some market pressures to increased U.S. production and weaker Chinese demand.
Iran, identified as the third-largest producer within the Organization of the Petroleum Exporting Countries, outputs nearly four million barrels of oil per day, according to the Energy Information Administration.
Other experts share similar concerns about the conflict’s impact on energy markets. Ross Schaap, head of research at GeoQuant, reported that their risk analysis model has detected a significant spike in political risk following the latest missile strikes. This suggests the potential for “much bigger events.” Josh Young, CIO of Bison Interests, highlighted the risk of a considerable escalation, predicting that an interruption in Iranian oil exports could drive prices above $100 per barrel.
