Escalation of conflict in the Middle East will send energy prices skyrocketing, analysts have warned

Global prices for crude oil jumped by as much as 3.5% shortly after Israel carried out a series of strikes on Iran in the early hours of Friday.

Both oil benchmarks soared over $3 a barrel in early trading before retreating. By 12:00 GMT, Brent crude oil futures for June delivery were down $0.50 at $86.63 per barrel. The May contract for US West Texas Intermediate (WTI) dropped $0.43, or 0.52%, to $82.30 per barrel.

Israel launched an attack on Iranian territory in the early morning hours. The barrage was confirmed by a senior US official in an interview with ABC News. Later, Al Jazeera reported that Iranian state television had also confirmed the strike, saying that air defenses had been activated. Flights across several areas, including Tehran and Isfahan, were suspended.

The attack, the latest tit-for-tit exchange between the two nations, came nearly a week after Iran unleashed a barrage of 300 aerial drones and missiles on Israel. The shelling was conducted in response to a suspected Israeli strike on an Iranian consular building in Syria that killed 12 people earlier this month, including three senior Iranian military officers. Tehran believes Israel was behind the bombing, although West Jerusalem has neither claimed nor denied responsibility.

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Israel strikes Iran – media

Iran is the world’s seventh largest oil producer, according to the US Energy Information Administration, and the third-largest OPEC member. It produces around 3.2 million barrels of crude per day. Last year, Iran ranked as the world’s second largest source of oil supply growth after the US.

The spike in oil prices is seen by analysts as a self-evident market reaction to mounting concerns about a renewed escalation of hostilities between Israel and Iran.

“Rising geopolitical risk premiums translate to a risk-off environment at this juncture with a heightened risk of oil supply disruption at least in the short-term,” Kelvin Wong, an analyst at OANDA in Singapore, told Reuters.

Earlier this week, energy experts at Bank of America warned that an all-out war between Israel and Iran, which will inevitably impact energy infrastructure and disrupt Iranian crude supplies, is expected to drive oil prices up by $30-$40 per barrel.

Increased tensions in the region could also jeopardize shipping through the Strait of Hormuz between Oman and Iran. About a fifth of the world’s total oil supply passes through the crucial shipping route.