Oil prices are poised for a significant increase when markets open Monday following U.S. And Israeli strikes against Iran Saturday, though the extent of the surge will depend on the duration and escalation of the conflict, analysts say.
The attacks, conducted by air and sea, targeted Iranian missile facilities, with President Donald Trump stating the intention to destroy Iran’s missile industry. Israel also launched strikes against Tehran and other major cities, prompting warnings of “crushing” retaliation from Iranian officials. Brent crude, the international benchmark, closed Friday at $72.87 a barrel, up 2.87 percent, while West Texas Intermediate, the U.S. Gauge, rose 2.78 percent to $67.02 a barrel.
Vandana Hari, chief executive of Vanda Insights, anticipates prices could jump to $80 per barrel if the conflict persists through Monday. Amro Zakaria, global financial markets strategist and founding partner of Kyoto Network and Madarik Ventures, expects an initial spike upon market opening, but suggests prices could fall back if the strikes are limited. “Should the strikes end quickly, I expect the prices to come back down as the market is oversupplied,” Zakaria said.
A protracted war, however, could see prices climb significantly higher. “The worst-case scenario would be if the strikes turn into a protracted war. Then we are talking about potentially 20 per cent of the global supply not finding its way to the markets, and only then we might see oil closer to the $100 mark,” Zakaria added.
Despite U.S. Sanctions, Iran remains a significant oil exporter, shipping around 1.9 million barrels per day as of December, largely to China via a network of “shadow ships” designed to evade restrictions. The U.S. Has recently increased enforcement against these shadow fleets, but China possesses substantial oil reserves, both strategic and commercial, potentially insulating it from major disruptions, according to Antoine Halff, chief analyst at Kayrros, a climate and environmental analytics firm. “You take Iran out, you’re not really starving the rest of the world,” Halff stated.
The Strait of Hormuz, a critical chokepoint for global oil supply, is located opposite the Arabian Peninsula and handles approximately 20% of the world’s oil. Conflict in the region carries the risk of disrupting oil flows through the strait, further exacerbating market concerns.
As of Saturday, oil market trading was suspended, meaning the immediate impact of the strikes will not be fully quantifiable until markets reopen Sunday evening. UBS strategist Giovanni Staunovo noted that the market had already priced in some risk premium in the days leading up to the attacks, and that market players will be closely watching for any actual disruptions to oil flows.
