U.S. crude oil prices rose more than 3% on Tuesday, coming off session highs after Iran fired missiles at Israel, raising fears that the Middle East is teetering on the brink of a regional war.
“There has been a lot complacency about this war,” Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNBC’s “The Exchange.”
The question now is how Israel will respond and whether they might target Iran’s nuclear facilities or oil infrastructure, Croft said. Iran is producing at a five-year high of over 3 million barrels per day, she said.
“We do need to think about a scenario where Iranian oil supplies are at risk,” Croft said.
Here are Tuesday’s energy prices:
- West Texas Intermediate November contract: $70.76 per barrel, up $2.59, or 3.8%.
- Brent December contract: $74.38 per barrel, up $2.68, or 3.74%.
“A short while ago, missiles were launched from Iran towards the State of Israel,” the Israel Defense Forces said in a statement. The IDF urged people to “remain in a protected space until further notice.”
“The explosions you are hearing are from interceptions or fallen projectiles,” the IDF said.
White House and Defense Department had warned earlier that Iran was preparing to launch ballistic missiles at Israel.
“We are actively supporting defensive preparations to defend Israel against this attack. A direct military attack from Iran against Israel will carry severe consequences for Iran,” a senior White House official told NBC News.
The U.S. Embassy in Jerusalem on Tuesday directed employees and their families to “shelter in place until further notice.“
Tensions in the Middle East have dramatically escalated over the past week, as Israel has pounded the Iran-backed militia Hezbollah with airstrikes, killing the group’s leader, Hassan Nasrallah. Israel dispatched ground forces into southern Lebanon on Tuesday.
Crude oil intraday
Oil market and geopolitical analysts have repeatedly warned this year that an Israeli incursion into Lebanon could be the trip wire that leads to a regional war with Iran, increasing the risk of crude supply disruptions.
The impact on the oil market will depend on the “scope and damage” caused by an Iranian attack, which in turn will drive Israel’s response, said Bob McNally, president of Rapidan Energy.
Iran and Israel came to blows in April but ultimately backed away from a full-blown conflict. Iran launched hundreds of ballistic missiles and drones against Israel, after the government of Prime Minster Benjamin Netanyahu struck an Iranian diplomatic compound in Syria.
The U.S., Israel and other allies foiled Iran’s April missile attack, giving the Netanyahu government room for a small retaliatory strike in Iran that did not lead to a further cycle of escalation.
McNally said “the crude risk premium should quickly dissipate” if there is a repeat of “April’s failed Iranian and restrained Israel exchanges.”
The analyst cautioned, however, that Israel has increasingly adopted a “three eyes for an eye” approach to attacks from regional enemies.
“If Iran attacks and causes damage, then the escalatory cycle could leg up quicker to sustain and even increase a geopolitical risk premium,” McNally said.
