Oil prices rose early on Monday to a five-month high after the US entered the Israel-Iran war at the weekend, stoking fears that an escalation could affect global energy supplies.
Brent, the benchmark for two thirds of the world’s oil, was up 0.48 per cent at $77.38 a barrel at 2.16pm UAE time on Monday. West Texas Intermediate, the gauge that tracks US crude, was 0.50 per cent higher at $74.21 per barrel.
Brent surged as much as 5.7 per cent to $81.40 a barrel in early trading, to its highest level since January, before paring the gains.
“Many remain optimistic that Iran will avoid a full-blown retaliation and regional chaos, to prevent its own oil facilities from becoming targets and to avoid a widening conflict that could hurt China – its biggest oil customer,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“So some think – and trade the idea – that the threat of disruption to oil trade will not materialise.”
The US struck three nuclear facilities in Iran on Saturday, with President Donald Trump saying on Sunday that the damage to the nuclear sites in Iran was “monumental”.
Meanwhile, Iran said it was ready to defend itself by “all necessary means” after the US strikes.
Foreign Ministry spokesman Esmail Baghaei condemned what he described on X as an “unconscionable act of aggression”.
The war, which began on June 13 when Israel attacked Iran's nuclear centres, has rattled investors and led to rising concerns about energy security.
On Sunday, Iranian state-owned media cited a legislator as saying that Iran’s parliament agreed to close the Strait of Hormuz, a gateway for about a fifth of the world’s daily oil output. However, the final decision is with Iran’s national security council, the report said.
Oil prices could surge to as much as $150 a barrel if traffic in the Strait of Hormuz is halted, according to analysts.
US Secretary of State Marco Rubio urged China on Sunday to prevent Iran from closing the strait. China is Iran’s key oil importer.
“I see no material increase in the risk of Iran attempting to blockade the Strait of Hormuz following the weekend’s US strikes,” said Vandana Hari, chief executive of Singapore-based Vanda Insights.
The Iranian parliament’s approval was “largely symbolic – more posturing than policy”, she added.
“Strategically, Iran has more to lose than gain from attempting to obstruct the Strait,” she told The National. “It could provoke its Gulf neighbours and antagonise its key buyer China and invite a forceful response from the US, whose beefed-up naval presence in the Arabian Sea serves both as a deterrent and a rapid-reaction force.”
The key risk remains any disruption to the Strait of Hormuz and while oil flows have continued uninterrupted so far, even the threat of closure could rattle markets, said Josh Gilbert, market analyst at eToro.
“Oil is front and centre this week. Should retaliation target key oil infrastructure or disrupt shipping lanes, we could see oil continue to move higher in the short term,” he said.
Flows through the Strait of Hormuz are already being affected, even if the major fear of a blockade is yet to be realised, Mukesh Sahdev, Rystad Energy’s global head of commodity markets for oil, said in a note on Friday.
Oil vessel flows have increased, probably to get it out of land terminals and storage, he said.
“Iran may be expediting exports, with indications of a 30 per cent to 40 per cent increase in oil shipments since the attacks began, compared to average June volumes prior to the escalation,” he added.
If “things get uglier” and Iran retaliates in a way that disrupts global oil and gas flows, the price of US crude could spike above the $100 barrel level, said Ms Ozkardeskaya.
“It’s worth remembering that it would take a few days to a few weeks to meaningfully disrupt global oil flows – and a weakened Iran, if left with no other options, could still go down that road,” she said.
“A sustainable jump in oil prices – and by sustainable, I mean a rise to around $100 a barrel for a few months – could have wider implications for the global economy by boosting inflation and preventing central banks from further easing. That, in turn, would weigh on production, business activity, and growth.”
