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Oil prices were subdued as markets reopened after Iran’s military attack on Israel, with traders shrugging off fears that the conflict could escalate into all-out war and curb supplies from the region.
Brent crude, the international benchmark, was steady at $90.45 a barrel as trading began in Asia on Monday morning. West Texas Intermediate, the American benchmark, also remained broadly unchanged at $85.72 per barrel.
The muted reaction suggested markets were betting the fallout from the strike would be contained after Iran said it considered the deal “done” and Washington sought to ease tensions.
Traders were eagerly awaiting market reaction after the Islamic Republic launched its first-ever strike against Israel from its own territory on Saturday. Tehran sent drones and missiles into the Jewish state in retaliation for a suspected Israeli attack on its consulate in Damascus that killed several military commanders.
Daniel Hynes, senior commodities strategist at ANZ Bank, said the calibrated nature of the attacks and the fact that they were well telegraphed had allayed market concerns.
“We had a rise in the price of oil before the weekend and so a geopolitical price premium was already created before this event,” he said.
US President Joe Biden has urged Israel to take a measured approach in its response. Prime Minister Benjamin Netanyahu’s war cabinet met on Sunday but no decision has yet been made on the country’s response.
In a statement released on Saturday, Iran’s permanent mission to the UN said: “The matter can be considered closed.” However, if the Israeli regime makes another mistake, Iran’s response would be much more severe.
Experts have warned that a harsh response from Israel could escalate the conflict, restricting oil supplies to the region and pushing up prices.
“Significant Israeli retaliation could trigger a cycle of destabilizing retaliation and push this conflict up the escalation ladder,” said Helima Croft, head of global commodities strategy at RBC Capital Markets and a former CIA analyst. .
“In such a scenario, we believe the risk to oil is not negligible. »
She added: “Even if Iran does not have the capacity to close the Strait of Hormuz, it appears to retain the capacity to replicate the 2019 scenario of attacking oil tankers, pipelines and critical energy infrastructure. »
Oil markets have risen to their highest level since October in recent weeks following the attack on Damascus, with markets pricing in the potential for an escalation of the conflict that could affect Gulf supplies.
Bob McNally, president of consulting firm Rapidan Energy and a former energy adviser to George W. Bush, said the strike’s aftermath could further propel prices “towards, or even beyond, $100 a barrel.”
“The market has been complacent about the expansion of the Gaza conflict to include Iran and, therefore, significant risk to Persian Gulf oil and gas. [liquefied natural gas] production and exports,” he said.
An exacerbation of the conflict risks shocking an already strained global oil market, as demand rises in major economies such as the United States and China, while OPEC+ producers limit supply.
“The United States and China stand to lose in the expansion of the conflict, as it would have a significant impact on the region’s energy exports, the price of oil and the global economy,” Ayham said Kamel, head of the Middle East and North Africa region at Eurasia consulting group.
Any price rise would come at a particularly delicate time for the US president, who is struggling to sell his economic record to voters ahead of November’s election amid stubbornly high inflation.
A further rise in crude prices threatens to exacerbate already high prices at the pump months before Americans go to the polls. Average U.S. gasoline prices stand at $3.63 per gallon, according to auto group AAA, up about 15 percent since the start of the year.
“It’s hard to overstate how unwelcome a geopolitically driven oil price spike would be for both the economy and President Biden’s re-election,” McNally said.
