The news that Israel had struck Iran rocked markets and raised fears that the Middle East’s oil supply might be disrupted, which caused oil prices to soar on Friday.
The benchmark contracts increased by over $3 before somewhat declining. As of 06:15 GMT, Brent futures were trading at $88.51 per barrel, up $1.40, or 1.61%. The most traded West Texas Intermediate contract in the United States increased by $1.38, or 1.68%, to $83.48 per barrel.
According to sources who spoke to Reuters, Israel attacked Iranian territory on Friday. This is only the most recent tit-for-tat exchange between the two nations that raises the possibility of further escalating hostilities in the region.
Although explosions were reported by Iranian media, an Iranian official informed Reuters that air defence systems were to blame. According to state media, three drones were shot down over the Iranian capital of Isfahan.
Rising geopolitical risk premiums, according to analyst Kelvin Wong of OANDA in Singapore, “translate to a risk-off environment at this juncture with a heightened risk of oil supply disruption, at least in the short-term.”
According to Jun Rong Yeap, a market strategist at IG in Singapore, “further escalation [suggests] that the tit-for-tat retaliation between both sides will drag for longer.”
An Iranian counterattack poses “significant risks to the widening of the conflict to a regional one and could potentially put some oil supplies at risk. Prices of oil could stay supported in the meantime as tensions will continue to heat up,” Yeap said.
Iran sent hundreds of drones and missiles into Syria this weekend in retaliation for what it believed to be an Israeli strike on its embassy compound. With little damage and deaths, the majority of the drones and missiles were shot down before they could enter Israeli land.
Investors have been watching Israel’s response to the Iranian drone assaults on April 13 very carefully. This week, the premium for geopolitical risk in oil prices had begun to unwind on the belief that international pressure would limit any Israeli retribution over Iran’s attack.
In the worldwide supply of crude oil, Venezuela lost a crucial U.S. license that allowed the OPEC member to export oil to markets throughout the world. In response to Iran’s drone strike on Israel, the United States has imposed sanctions on the country, another member of OPEC, targeting its unmanned aerial vehicle program. But Iran’s oil sector is not included in the sanctions.
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