Oil traders face a critical juncture as tensions escalate between Iran and Israel, prompting a reassessment of geopolitical risks in an already tight market where prices have surpassed $90 per barrel.The conflict between Iran and Israel has entered a new phase with direct hostilities, raising concerns among traders about potential disruptions to oil supply routes. Giovanni Staunovo, an analyst at UBS Group AG, noted the likelihood of an initial spike in oil prices following Iran’s first direct strike on Israel, with the duration of any price surge contingent on Israel’s response.
While Brent crude had already surpassed $90 a barrel earlier in the year amid escalating tensions, Iran’s forceful retaliation has heightened concerns over potential disruptions in the Strait of Hormuz, a critical chokepoint for global oil trade. Iran’s recent seizure of a container ship near the strait, allegedly linked to Israel, underscores the volatility in the region. Additionally, Yemen’s Houthis, supported by Iran, have previously targeted vessels in the Red Sea, leading to increased freight costs and elevated oil demand due to longer shipping routes.
Iman Nasseri, Middle East managing director at consultancy FGE, anticipates further price increases, citing the risk of Israeli reprisals or Iranian interference with shipping in the Persian Gulf. With oil prices already factoring in a risk premium of approximately $10 per barrel, Nasseri predicts an additional rise of $2 to $5 per barrel due to heightened tensions.
The volatile situation in the Middle East adds complexity to an oil market characterized by robust demand and a disciplined OPEC+ production policy aimed at reducing global stockpiles. Vitol Group, the world’s largest oil trader, forecasts strong demand growth surpassing most expectations, while Seb Barrack, head of commodities at hedge fund Citadel, expects the market to tighten significantly later in the year.
Ayham Kamel, head of Middle East and North Africa at risk consultancy Eurasia Group, warns of the potential for a conflict escalation and miscalculations, highlighting the need for energy markets to integrate geopolitical risks more seriously. As tensions persist between Iran and Israel, oil traders navigate a landscape fraught with uncertainty, bracing for potential disruptions that could further drive prices upward in the coming months.
