Global oil prices have had their largest single-day percentage increases in years, reflecting fears that a wider conflict in the Middle East could lead to serious energy supply disruptions.
Brent crude, the global benchmark, was last up 4.3% at $72.4 a barrel on Friday. West Texas Intermediate, the US benchmark, jumped 5% to $71.4 a barrel, after gaining as much as 13% earlier in the day. According to Reuters, they are the biggest intraday gains for each benchmark since March 2022, a month after Russia launched a full-scale invasion of Ukraine.
The surge illustrates “both immediate supply concerns and a growing sense that negative headlines could extend the timeline for escalation unlike prior Israel-Iran episode,” Ahmad Assiri, research strategist at Pepperstone, a financial services firm, wrote in a research note.
In the equities market, US stock futures fell, sending investors retreating to traditional safe haven investments like gold. Dow futures dropped 1.3%, or over 540 points. S&P 500 futures and Nasdaq Composite futures were down even more, by 1.4% and 1.6%, respectively. Meanwhile, gold rose about 1% to $3,413.6 per troy ounce.
Early on Friday, Israel launched an unprecedented attack against Iran’s nuclear and missile facilities, killing at least two of Iran’s top military commanders. Israeli Prime Minister Benjamin Netanyahu said in a televised address that the “targeted military operation” is expected to continue for “many days.”
“This operation will continue for as many days as it takes to remove this threat,” Netanyahu said.
A state of emergency has been declared in Israel in anticipation of an Iranian retaliation, which appears to have begun. Iran’s Supreme Leader Ayatollah Ali Khamenei said Israel will face “severe punishment” for the attacks.
Secretary of State Marco Rubio said the US was not involved in the Israeli operation and warned Iran against targeting US interests or personnel.
Investors are concerned about how a retaliation by Iran may play out, whether the US may be targeted and whether a critical oil transport route may be disrupted.
If the conflict eliminates Iranian oil from the market, oil prices could spike by about $7.50 a barrel, according to Andy Lipow, president of Lipow Oil Associates, a consulting firm.
“Iran knows full well that Trump is focused on lower energy prices and actions by Iran that impact Middle East supply and consequently raise oil prices damage Trump politically,” he said.
The bigger fear now is an even broader conflict that impacts the flow of oil from the Strait of Hormuz, the most critical chokepoint for oil supplies on the planet.
“Should oil exports through the Strait of Hormuz be affected, we could see $100 oil,” Lipow said.
Bob McNally, president of Rapidan Energy Group, a consulting firm, told CNN that the oil market had been “complacent about the risk of geopolitical disruptions” from the region.
“With Israel having commenced attacks against Iran, we expect significantly more risk premium to come into the price of crude in the coming days,” he said.
Iran’s preparation for a military response “raises the risk of not just disruptions but of contagion in other neighboring oil producing nations too,” Priyanka Sachdeva, senior market analyst at Phillip Nova, told Reuters.
“Although Trump has shown reluctance to participate, U.S. involvement could further raise concerns,” she said.
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