Oil surges after Israel’s attack on Iran

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Oil prices surged on Friday in the biggest move in more than three years as Israel’s air strikes against Iran threaten supplies across the region and sparked a rush to safe haven assets.

In early afternoon in Asia Brent crude, the international benchmark, rose about 8 per cent to $74.88 and US marker West Texas Intermediate rose more than 8 per cent to $73.67, with traders concerned the conflict could hit energy supplies in one of the world’s most important oil and gas producing regions.

Michael Alfaro, chief investment officer at Gallo Partners, a hedge fund focused on energy and industrials, said the attack on Iran’s nuclear facilities marked a “seismic escalation” in the conflict.

“We’re staring down the barrel of a prolonged conflict that’s almost certain to keep oil prices elevated,” he said.

Gold, an asset seen as a haven, rose by roughly 1.2 per cent during Asian trading hours to $3,427 per ounce.

There are multiple risks for the energy sector from a renewed conflict.

The Strait of Hormuz, the narrow waterway separating Iran from the Gulf states, is a conduit for around a third of the world’s seaborne oil supplies. Iran has repeatedly threatened to close it in the event of an attack. 

Some of the world’s largest oilfields, including in Saudi Arabia and Iraq, are also within reach of Iran’s missiles and drones. In 2019 Iran was widely believed to be behind an attack on Saudi Arabian oil facilities that briefly pushed the price of crude.

Qatar is also one of the world’s largest suppliers of liquefied natural gas (LNG), and its shipments must traverse Hormuz to reach international markets at a time of tight global supplies. 

Helima Croft, a former CIA analyst who is now at RBC Capital Markets, questioned whether the latest strike was a limited military engagement, as occurred in autumn, or if Iran would target regional energy supplies.

“The key question is whether Iran seeks to internationalise the cost of tonight’s action by targeting regional energy infrastructure,” Croft said.

US President Donald Trump has previously pledged to keep oil prices low to help tame inflation.

After Russia’s full-scale invasion of Ukraine the Biden administration released around 300mn barrels of crude from the US Strategic Petroleum Reserve (SPR), the world’s largest emergency stockpile, to help keep prices in check.

If the oil price surge is prolonged or supplies are disrupted from the Middle East, Trump could utilise the SPR, but in the past he has criticised former President Joe Biden for draining the reserve to its lowest level in 40 years. The SPR currently has around 400mn barrels, well below its 727mn barrel capacity.

Traders will also look for any response from the Opec+ group of oil producers. Saudi Arabia, one of the group’s most powerful members, condemned Israel’s attack on Friday. 

The group, of which Iran is a member, has been raising production in recent months but may face additional pressure from the Trump administration to tap it’s additional capacity to keep markets well supplied.

Stocks in the benchmark Nikkei 225 index fell by around 1.3 per cent. South Korea’s Kospi and the Hang Seng in Hong Kong fell 1.28 per cent and 0.7 per cent respectively.

The price of Bitcoin fell as much as 3 per cent on Friday in Asia hours, matching a broad sell-off of risk assets across the region.

The price of one Bitcoin dropped briefly to the $103,000 level, before rallying slightly to $104,000.