Israel's Response to Iran's Attack Could Impact Oil Markets
Oil Markets React to Middle East Tensions
Despite months of dismissing the potential for a supply shock in the Middle East, oil traders were caught off guard this week when Iran launched multiple waves of ballistic and hypersonic missiles against Israel. This event led to a spike in oil prices, exceeding $75/bbl. The war in the Middle East is escalating, and Israel has promised a "painful" response to Iran's early week attack. As a result, Brent prices increased by 4.5% in the last three days, with further gains expected. Israel's Prime Minister, Benjamin Netanyahu, might deploy stealth fighter jets to disable Iran's oil infrastructure export capabilities.
Analysts Predict Impact on Oil Supplies
Helima Croft, the head of the global commodity strategy at RBC Capital Markets, appeared on CNBC's "The Exchange," where she commented on the war's impact on oil supplies. She expressed concern about the complacency surrounding the war and urged consideration of a scenario where Iranian oil supplies are at risk. Francesco Martoccia, a Citigroup analyst, informed clients that an IDF strike on Iran's export capacity could reduce global crude supply by 1.5 million barrels per day overnight. A minor attack on energy infrastructure could eliminate 300,000 to 450,000 barrels of daily output.
Uncertainty Surrounds Israel's Response
The exact nature of the IDF's response to Iran remains uncertain. Possibilities range from targeting energy infrastructure to high-value military assets and nuclear sites. Bloomberg provided a detailed map of Iran's significant energy installations, including oil and gas fields, pipelines, refineries, and storage terminals. Ross Schaapp, head of research at GeoQuant, suggested on CNBC's "Squawk Box" that Israel might aim to hinder Iran's oil export capabilities. He also predicted that any IDF attack on Iranian energy infrastructure would dramatically increase Brent prices.
Traders Forecast $100/bbl
This week, Brent's implied volatility gauge reached its highest level in almost a year. In the options markets, a surge in Brent call options indicates traders predicting $100/bbl. Bloomberg reported that almost 27 million barrels of Brent December $100 calls were traded by 11:20 am in New York. Meanwhile, Bloomberg Intelligence analyst Henik Fung suggested that traders unwinding short bets could push crude prices higher due to a wider war-risk premium. He added that WTI could retest $80 in the short term.
Anticipating Israel's Retaliation
The global community is waiting for Israel's response. A top energy research desk has emphasized that a retaliatory strike against Iran by Israel is almost guaranteed. The primary question is what IDF stealth jets will target.
Bottom Line
The escalating tensions in the Middle East and their potential impact on oil markets underscore the interconnectedness of geopolitics and global economies. It remains to be seen how Israel's response to Iran's attack will shape the oil market's future. What do you think about these developments? Feel free to share this article with your friends and discuss it. Don't forget to sign up for the Daily Briefing, which happens every day at 6 pm.
