Crude Oil Prices Jump 7% As Israel-Iran Conflict Raises Middle East Supply Fears

Crude oil prices surged over 7% on Friday after a sharp escalation in the conflict between Israel and Iran raised fears of major disruptions in oil exports from the Middle East. The rise marked the biggest single-day gain in oil prices since Russia invaded Ukraine in 2022.

Brent crude futures climbed $4.87, or 7.02%, to settle at $74.23 per barrel. Earlier in the day, prices had spiked by more than 13% to hit $78.50, the highest level since January 27. For the week, Brent posted a strong 12.5% gain.

Meanwhile, U.S. West Texas Intermediate (WTI) crude rose by $4.94, or 7.26%, to finish at $72.98 per barrel. During the session, WTI briefly surged over 14% to reach $77.62, its highest since January 21. WTI gained 13% over the past week.

"Escalating tensions between Israel and Iran sparked fears of severe supply disruptions, the threat to the Strait of Hormuz, a key global oil artery, looms large. Supporting the price rally, U.S. crude inventories fell more than expected, signalling robust demand. Additionally, weaker U.S. inflation data reinforced expectations of a Fed rate cut by September, potentially lifting future oil demand," said Rahul Kalantri, VP Commodities, Mehta Equities.

"In the international market, WTI crude oil prices are expected to find support near $70, with resistance at $74.80. Domestically, key levels are seen at Rs 6,100 for support and Rs 6,480 as resistance. Given the recent sharp rally and heightened volatility driven by escalating geopolitical tensions, it is advisable to adopt a wait-and-watch approach before taking new positions," added Rahul Kalantri of Mehta Equites.

Global Markets Sink:

As oil prices spiked, global stock markets dropped sharply. The Dow Jones Industrial Average fell 769 points, or 1.8%. The S&P 500 dropped over 1%, and the Nasdaq lost 1.3%, according to Reuters.

At the same time, gold prices rose, and both the U.S. dollar and Swiss franc strengthened, which typically happens during times of geopolitical uncertainty.

Israel-Iran Conflict Intensifies:

Under "Operation Rising Sword," Israel launched air strikes on Iranian nuclear research sites, missile production facilities, and senior military figures. Iran responded with missile attacks on Tel Aviv, and explosions were reported in southern Israel shortly after the markets closed.

Although Iran's National Iranian Oil Refining and Distribution Company claimed that its oil refineries and storage facilities were not damaged, the conflict has sparked serious concern about the region's oil exports.
"Israel's military strikes against Iran raise fears about a broader escalation in the region. Oil is the fever measure of such conflicts, and prices spiked accordingly. If this latest conflict eruption follows the usual pattern, prices will rise temporarily before returning to previous levels," said Norbert Rücker, Head of Economics and Next Generation Research, Julius Baer.

"The oil market is very resilient today, and supplies are unlikely to be at risk. Storage is ample, spare capacity is plentiful, and exports grow outside of the Middle East," Norbert Rücker of Julius Baer added.

Strait of Hormuz at Risk?

The growing conflict threatens the Strait of Hormuz, a crucial waterway for global oil shipments. Located between Iran and Oman, this narrow channel is only 33 kilometers wide at its tightest point, with just three kilometers for ships to pass in each direction.

About 20% of the world's oil supply passes through the Strait of Hormuz. Any disruption there could lead to a global spike in fuel prices.

OPEC Capacity In Focus:

Iran, a key member of the Organization of the Petroleum Exporting Countries (OPEC), produces about 3.3 million barrels of oil per day and exports more than 2 million barrels daily. Analysts say that spare production capacity among other OPEC members and allies, including Russia, could help balance any supply gaps, at least in the short term.

Still, with tensions escalating, markets remain on edge over the possibility of a broader regional war that could hit global energy supplies hard.