Oil prices surge over 7% as Israel–Iran conflict reignites Middle East fears

Oil prices soared on Friday, posting their sharpest gains in over a year, as escalating tensions between Israel and Iran spooked energy markets. Brent crude settled at $74.23 a barrel, up 7.02 per cent or $4.87, while US West Texas Intermediate (WTI) closed at $72.98, a jump of 7.62 per cent or $4.94, according to data quoted by Reuters.

Both benchmarks hit their highest intraday levels since January, with Brent touching $78.50 and WTI surging to $77.62 earlier in the session.

Week-on-week, Brent was up 12.5 per cent and WTI climbed nearly 13 per cent—marking the most dramatic one-day swings since 2022, when Russia invaded Ukraine and sent energy markets into a frenzy.

The gains come amid heightened geopolitical risks in the Middle East—home to a third of the world’s oil supply—raising investor concerns over potential disruptions to oil flows, particularly through the Strait of Hormuz.

Markets retreat, safe havens surge

The global equity markets recoiled under pressure. As per Reuters, the Dow Jones Industrial Average slipped by 1.8 per cent, the S&P 500 fell over 1 per cent, and the Nasdaq dropped 1.3 per cent. Investors sought safety in gold, the US dollar, and the Swiss franc, driving those assets higher in a classic flight to safety.

Meanwhile, speculative interest in crude oil surged. According to the US Commodity Futures Trading Commission (CFTC), money managers raised their net long positions in US crude futures and options by over 15,000 contracts in the week ending June 10, reaching a total of 121,911 positions.

Traders also aggressively bought WTI $80 call options, signalling expectations of further price increases, as reported by Bloomberg.

Adding to the pressure, energy services firm Baker Hughes reported that the US oil rig count fell for the seventh straight week. The number of active oil rigs dropped by three to 439—the lowest since October 2021.

Israel–Iran conflict escalates with cross-border strikes

The oil rally was fuelled by a dramatic escalation in military action between Israel and Iran. On Friday, Israel confirmed that it had launched targeted air strikes on Iranian nuclear research facilities, missile production sites, and senior military personnel.

As quoted by Reuters, the Israeli Defence Forces warned that this was the beginning of a “prolonged campaign” to halt Tehran’s nuclear ambitions.

In retaliation, Iran launched more than 150 ballistic missiles and over 100 drones targeting Israeli cities, including Tel Aviv and Jerusalem. While most were intercepted, several missiles struck buildings, injuring dozens, as per updates from The Guardian.

Despite the exchange, Iran’s oil infrastructure—including the Kharg Island terminal responsible for 90 per cent of its crude exports—remains untouched. “Israeli action has so far avoided Iranian energy infrastructure,” said Ben Hoff, head of commodity research at Societe Generale, in a note cited by Reuters.

But analysts warn that this restraint may not last. “Any further escalation could follow an ‘energy-for-energy’ logic,” Hoff added, suggesting that an attack on one side’s oil infrastructure could provoke retaliatory strikes on the others.

Iran, a founding member of the Organization of the Petroleum Exporting Countries (OPEC), currently produces around 3.3 million barrels of oil per day and exports over 2 million barrels of crude and refined fuels daily, as per estimates cited by Reuters.

A disruption in its output would significantly affect global supply dynamics, especially with limited spare capacity available within OPEC+.

Strait of Hormuz in focus

The biggest wildcard remains the Strait of Hormuz, through which an estimated 18 to 19 million barrels of oil and fuel pass daily, roughly a fifth of global consumption. According to Rabobank, “Saudi Arabia, Kuwait, Iraq and Iran are wholly locked into one tiny passage for exports,” making any disruption a global economic threat.

Iran has so far refrained from threatening the strait, aware that its own sea-based oil exports—primarily to China—would be crippled. “Cutting off the Strait of Hormuz would be counterproductive to Iran’s relationship with its sole oil customer, China,” said analysts at JP Morgan, as quoted by Reuters.

Still, energy analysts are not ruling out further volatility. Goldman Sachs warned that crude prices could spike above $100 a barrel if the situation worsens, while JP Morgan has flagged a scenario where Brent hits $120 if the conflict spreads to key infrastructure or leads to prolonged shipping disruptions.

Emergency response readiness

In response to the turmoil, the International Energy Agency (IEA) announced on Friday that it is prepared to release strategic reserves should the situation result in significant supply disruptions. However, as quoted by Reuters, OPEC and its allies currently see no need to raise production, suggesting confidence that market fundamentals remain stable for now.

While no physical supply has been disrupted yet, the reintroduction of a geopolitical risk premium is now firmly priced into oil markets.

With tensions running high, the energy world is bracing for further volatility in the coming days. All eyes are on the next moves by Tehran and Tel Aviv—and whether this oil price spike is a warning or the beginning of a longer crisis.

(With inputs from the agencies)