(Bloomberg) — Oil jumped after US officials said Israel had struck targets in Iran, with Brent rallying on concerns over the potential for a wider regional conflict that could endanger crude supplies.
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The global benchmark surged after unverified reports of explosions in Iran, Syria and Iraq. Israel launched a missile strike against Iran, according to two US officials. An explosion was heard on Friday in the central city of Isfahan, the country’s semi-official Fars news agency reported.
Traders have been girding for an Israeli response to the Islamic Republic’s unprecedented missile and drone attack last weekend, with the rhetoric between the two escalating as Tehran warned against striking its nuclear facilities. The Middle East accounts for about a third of global crude supplies.
Haven assets also rose as tensions ratcheted higher. Gold spiked toward a record, while the US dollar climbed to a multi-month high. Copper gained, while equities declined.
“Depending on the nature of strikes, we are moving closer toward a scenario where supply risks become a reality,” said Warren Patterson, head of commodities strategy at ING Groep NV in Singapore. “The market will likely have to start pricing in an even larger risk premium.”
Crude has rallied this year, with gains driven by the worsening hostilities in the Middle East, as well as OPEC+ supply cuts that have tightened the market. Higher energy prices, if sustained, would boosts risks for the global economy and pose a challenge for central bankers as they seek to tame inflation.
Read More: What Are Israel’s Options for Retaliating Against Iran’s Strike?
Among the initial reports, ABC News, citing an unidentified US official, said Israeli missiles hit a site in Iran. Separately, the Mehr news agency said that flights had been suspended in Tehran, Isfahan and Shiraz.
Trading volumes spiked, with about 300,000 lots of Brent and over 260,000 of West Texas Intermediate traded before 11 a.m. Singapore time, far more than usual. There was also active trading of Brent June call options — which profit when prices gain — centered around strike prices of $90 and $95 a barrel. The premium of call options over put options also surged to the most since early 2022.
“We continue to highlight the heightened risk that this war will move up the escalation ladder,” RBC Capital Markets LLC analysts including Helima Croft said in a note before crude’s spike. “Oil supplies could be caught in the cross-hairs of this metastasizing conflict.”
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–With assistance from Elizabeth Low.
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