Oil prices surged nearly 12% at their peak today in response to the sharp escalation of the conflict between Iran and Israel.
Although most of the gains have since been pared back, oil remains above the levels seen prior to the panic triggered by the trade paralysis caused by Donald Trump's tariffs. The current geopolitical environment suggests a long-term reversal in the trend for this key energy commodity.
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The OIL contract had been consistently rebounding from its recent low around $62–62 per barrel, but it was the first reports of U.S. diplomats withdrawing from embassies that allowed the price to break above the $66–67 buffer zone. Source: xStation5
Inevitable Escalation
The Israeli airstrike on Iran’s nuclear facilities went beyond the expectations of most political and financial actors, even in the context of earlier reports of U.S. diplomatic staff leaving the region. The attack reportedly killed, among others, the Chief of Staff of Iran’s armed forces and several scientists linked to Iran’s nuclear program. Early reports indicate critical damage to major nuclear infrastructure in Natanz.
Given the declarations from both sides, escalation now appears inevitable. Israeli Prime Minister Benjamin Netanyahu stated that “the operation will continue for as many days at it takes,” calling the events “decisive for Israel’s history.” Meanwhile, Iran labeled the attack as crossing all red lines and pledged unlimited retaliation.
Supply Shock Fuels Speculation
Iran currently produces around 3 million barrels of oil per day, and further escalation presents a multi-dimensional threat to global supply. The oil market is already showing early signs of stress, to which OPEC has responded by increasing production, though forecasts already indicate potential output declines in the U.S., for instance.
A key concern remains the Strait of Hormuz, through which 20% of global oil supply flows. Should Iran retaliate by blocking the strait, it could cause serious disruption to supply chains and further fuel the rise in oil prices.
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