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Global oil prices soar after Israel attacks Iran

Global oil prices surged following Israel’s announcement of a strike against Iran, marking a significant escalation in Middle Eastern tensions.

The benchmark Brent crude price rose by over 10%, reaching its highest point since January, before settling back slightly.

Traders expressed concerns that a potential conflict between Iran and Israel would disrupt supply from this energy-rich region.

The price of crude oil influences everything, from fuel costs to grocery prices.

Following the initial surge, oil prices gradually decreased, yet Brent crude still closed over 7% higher than on Thursday, trading at $74.23 a barrel.

Despite this increase, oil prices remain more than 10% lower than they were at the same time last year and are significantly below the peaks seen in early 2022 after Russia’s invasion of Ukraine, when crude prices soared above $100 a barrel.

Markets across Asia and Europe experienced drops on Friday, with Japan’s Nikkei index finishing 0.9% lower and the UK’s FTSE 100 index down 0.39%.

In the US, stock markets also closed in the red, with the Dow Jones Industrial Average falling by 1.79% and the S&P 500 decreasing by 0.69%.

Meanwhile, “safe haven” assets such as gold and the Swiss franc saw gains, as some investors sought stability in uncertain times.

Gold prices reached their highest level in nearly two months, climbing 1.2% to $3,423.30 per ounce.

In response to the attack, the Israeli Defence Forces (IDF) reported that Iran had launched approximately 100 drones towards Israel.

Analysts informed the BBC that energy traders would be closely monitoring the conflict’s escalation in the coming days.

“This is a volatile situation, but it could de-escalate quickly, as seen in April and October last year when Israel and Iran engaged directly,” stated Vandana Hari of Vanda Insights.

“Conversely, it might spiral into a larger conflict affecting Middle Eastern oil supplies,” she added.

Capital Economics analysts noted that if Iran’s oil production and export facilities were targeted, Brent crude prices could skyrocket to around $80-$100 per barrel.

However, they also pointed out that such a price increase would likely prompt other oil producers to ramp up output, ultimately mitigating the price escalation and its inflationary effects.

Rod Dennis, a spokesperson for the UK motoring organization RAC, stated it’s “too early” to gauge the impact of the recent oil price rise on petrol costs.

“Two main factors are at play: whether the higher wholesale fuel prices persist in the coming days and, importantly, the profit margin retailers choose to set,” he explained.

In a worst-case scenario, Iran could disrupt daily oil supplies by targeting infrastructure or shipping in the Strait of Hormuz.

The Strait is a crucial shipping route, with around one-fifth of the world’s oil passing through it.

Numerous tankers are typically en route to or from the Strait of Hormuz, transporting energy from the Middle East to global markets.

Situated between Iran to the north and Oman and the UAE to the south, the Strait of Hormuz connects the Gulf to the Arabian Sea.

“What we’re witnessing now is a very initial risk-on reaction. However, over the next couple of days, the market will need to assess potential escalations,” commented Saul Kavonic, head of energy research at MST Financial.

Additional reporting by Katie Silver