Background on Key Players and Relevance
Oil prices rose nearly 3% on Thursday due to the intensifying aerial war between Israel and Iran, which has been ongoing for about a week. The uncertainty surrounding potential U.S. involvement kept investors on edge, causing oil prices to soar.
Israel targeted Iranian nuclear sites on Thursday, while Iran retaliated by firing missiles and drones at Israel after hitting an Israeli hospital during the night. Neither side showed signs of seeking a peaceful resolution, with Israeli Prime Minister Benjamin Netanyahu stating that Tehran’s “tyrants” would pay the “full price,” and Iran warning against any third party joining the attacks.
The White House announced that President Donald Trump would decide within the next two weeks whether the U.S. would intervene in the conflict between Israel and Iran.
Impact on Oil Markets
The prospect of U.S. involvement has pushed oil prices higher, according to Rory Johnston, an analyst and founder of Commodity Context. “There is growing consensus in the market that the U.S. will intervene in some way.”
Iran is the third-largest producer among OPEC members, extracting 3.3 million barrels of crude daily. The Strait of Hormuz, located on Iran’s southern coast, sees 18 to 21 million barrels of oil and oil products flow daily. Fears exist that the fighting could disrupt these commercial flows.
Should Iran feel threatened, the risk of significant energy disruptions would increase, potentially triggering attacks on oil tankers and energy infrastructure if the U.S. enters the conflict, according to Helima Croft, an analyst at RBC Capital.
JP Morgan stated on Thursday that an extreme scenario, where the conflict escalates across the region and includes closing the Strait of Hormuz, could drive oil prices up to $120-130 per barrel.
Analysts’ Perspectives on Oil Price Outlook
Goldman Sachs asserted on Wednesday that a geopolitical risk premium of $10 per barrel is justified, given reduced Iranian supply and the risk of broader disruptions that could push Brent crude above $90.
Even if tensions in the Middle East ease in the coming days, oil prices are unlikely to return to the $60 range they were at a month ago, according to Phil Flynn, senior analyst at Price Futures Group. “This conflict takes oil out of its complacency mode. I believe the market has been undervaluing geopolitical risks.”
DBRS Morningstar expects any sudden oil price surge to be temporary. A higher price would exacerbate headwinds related to tariffs and global oil demand.
Key Questions and Answers
- Q: Why are oil prices rising? A: Oil prices are surging due to the escalating conflict between Israel and Iran, coupled with uncertainty over potential U.S. involvement.
- Q: Who are the key players in this conflict? A: The main parties involved are Israel and Iran, with the U.S. potentially playing a role due to its strategic interests in the region.
- Q: How does this conflict affect oil markets? A: The conflict raises concerns about disruptions in oil supply through the Strait of Hormuz, potentially driving prices higher.
- Q: What do analysts predict for oil prices? A: Analysts expect oil prices to remain elevated due to geopolitical risks, reduced Iranian supply, and potential broader disruptions.
- Q: Could oil prices return to pre-conflict levels? A: Despite potential de-escalation, analysts believe oil prices are unlikely to drop back to the $60 range due to lingering geopolitical risks.
