Oil prices spiked in the wake of Israel’s latest attacks on Iran, which targeted nuclear facilities, as traders and investors fear a wider escalation in a conflict that Israel has already said will continue for days.
Prices for Brent crude, the global benchmark, initially jumped as much as 13 percent and were still trading around 7 percent higher early Friday, or more than $75 per barrel. U.S. crude prices were up almost 8 percent to $74 per barrel. Stock markets in Israel, Europe, and Asia were all broadly down, and premarket trading in the U.S. Dow Jones index pointed toward an opening fall.
The oil-price spike is not about physical damage to oil infrastructure: The Israeli strikes targeted the Natanz uranium enrichment facility, a number of Iranian nuclear scientists, and top military leadership. But as Israel continues its attacks, Iran’s oil refineries and oil-loading installations could come into the crosshairs, since oil and gas export revenues enable the Iranian regime to fund its regional destabilization activities and its missile and nuclear programs.
“Sooner or later, [Israeli Prime Minister Benjamin] Netanyahu is going to debate striking Iran’s oil industry again. [Former U.S. President Joe] Biden talked him out of it twice last year. But will [U.S. President Donald] Trump?” said Matthew Reed, vice president of Foreign Reports, an energy consultancy focused on the Middle East.
The jittery oil market reflects fears that the conflict may involve the United States, despite a clear statement on Thursday night from U.S. Secretary of State Marco Rubio that Israel’s actions were “unilateral.” If Iran believes, as it likely will, that Israel acted with at least tacit permission from Washington, then Tehran’s threatened reprisals may well go beyond strikes on Israel to include U.S. military assets in the Middle East. Rubio specifically warned Iran not to target U.S. interests or personnel.
And, as always, oil traders worry about perennial Iranian threats to close or disrupt shipping in the vital Strait of Hormuz. Though that would be physically difficult, and likely self-defeating, it is among Iran’s usual threats. On June 11, the United Kingdom’s Maritime Trade Operations warned oil tankers to exercise caution in the strait and the Persian Gulf due to heightened regional tensions.
“This is only day one. But it’s easy to imagine a scenario that compromises oil, hence the price reaction,” Reed said. “Tehran has to be careful about its response now. Thankfully, Iran is on better terms today with its oil-rich Gulf Arab neighbors, especially Saudi Arabia. Escalation directed at them or the Strait of Hormuz—and by extension the global economy—could prove suicidal for the regime and invite U.S. intervention.”
The strikes have halted, at least for now, the diplomatic track that the Trump administration has pursued since April to curb Iran’s nuclear ambitions. The United States and Iran were scheduled to meet for a sixth round of talks in Oman on Sunday, but Iran announced on Friday that it would be withdrawing from the negotiations. Prospects were already dim, given Iranian insistence on its right to uranium enrichment, the few signs that the United States was willing to countenance any Iranian enrichment, and after the International Atomic Energy Agency declared that Iran was not in compliance with its obligations under the United Nations’ Nuclear Non-Proliferation Treaty—a step that could trigger additional sanctions on Iran this fall.
Trump signaled his hope that the Israeli strikes would force Iran back to the negotiating table to avoid an even worse fate. “Iran must make a deal, before there is nothing left,” he posted on social media on Friday.
The oil-price spike will also have a knock-on effect outside the region. Sharply higher oil prices will likely make it harder for the United States to support a European Union proposal to increase economic pressure on Russia by lowering the price at which Russian oil can be legally exported. That measure, which is set to be discussed at this weekend’s G-7 summit in Canada, would remove Russian barrels from the market and push oil prices higher—something that Trump has been at pains to avoid for domestic political reasons. The higher prices also make it less likely the White House will endorse pending U.S. Senate legislation that would levy severe sanctions on Russia, essentially strangling its oil-export business.