(Bloomberg) — Oil prices rose after U.S. officials said Israel hit targets in Iran, with Brent joining concerns over the potential for a broader regional conflict that could jeopardize crude supplies.
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The global benchmark rose after unverified reports of explosions in Iran, Syria and Iraq. Israel launched a missile attack on Iran, according to two US officials. An explosion was heard in the central city of Isfahan on Friday, the country’s semi-official Fars news agency reported.
Traders have spoken out in favor of an Israeli response to the Islamic Republic’s unprecedented missile and drone attack last weekend, with rhetoric between the two escalating as Tehran warned against attacking its nuclear facilities. The Middle East accounts for about a third of global crude oil supplies.
Havens’ assets also rose as tensions rose. Gold spiked toward a record, while the U.S. dollar climbed to a multi-month high. Copper gained while stocks fell.
“Depending on the nature of the strikes, we may be closer to a scenario where supply risks materialize,” said Warren Patterson, head of commodity strategy at ING Groep NV in Singapore. “The market will probably have to price in an even larger risk premium.”
Crude oil has rebounded this year, with gains due to worsening hostilities in the Middle East and OPEC+ supply cuts that have tightened the market. If higher energy prices persist, risks to the global economy would increase and pose a challenge to central bankers in their efforts to curb inflation.
Read more: What are Israel’s options to retaliate against Iran’s attack?
In initial reports, ABC News, citing an unidentified US official, said Israeli missiles hit a site in Iran. Separately, Mehr news agency said flights had been suspended in Tehran, Isfahan and Shiraz.
Trading volumes rose, with around 300,000 lots of Brent and more than 260,000 West Texas Intermediate traded before 11am Singapore time, much more than normal. There was also active trading in Brent June call options – which benefit if prices rise – around strike prices of $90 and $95 per barrel. The premium of call options over put options has also increased the most since the beginning of 2022.
“We continue to emphasize the heightened risk that this war will climb the escalation ladder,” RBC Capital Markets LLC analysts including Helima Croft said in a note ahead of crude’s peak. “Oil supplies could be caught in the crosshairs of this spreading conflict.”
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–With help from Elizabeth Low.
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