Analysts: Oil prices expected to rise after Iranian attack on Israel

Oil prices are expected to rise on Monday after Iran’s attack on Israel, but further gains may depend on how Israel and the West choose to respond, analysts said on Sunday.

According to Reuters, Iran launched explosive drones and missiles at Israel on Saturday evening in response to a suspected Israeli raid on the Iranian consulate in Syria on April 1. Iran’s first direct attack on Israel has fueled fears of a broader regional conflict.

Fears about Iran’s response to the attack on its embassy compound in Damascus had already boosted oil prices last week and contributed to the global benchmark Brent crude price rising on Friday to $92.18 a barrel, the highest level since October.

The price of oil at settlement on Friday rose 71 cents to $90.45, while US West Texas Intermediate crude futures rose 64 cents to $85.66. Trading is suspended on Sunday.

“It is only logical to expect stronger prices when trading resumes, but there has been no impact on production yet, and Iran has said the matter can be considered over,” said Tamas Varga of oil brokerage BVM.

He added, “No matter how fierce and painful the market’s initial reaction was, the rise may be short-lived unless supplies from the region are significantly disrupted.”

US President Joe Biden said he would hold a meeting of leaders of the Group of Seven major economies on Sunday to coordinate a diplomatic response to the Iranian attack.

“Oil prices may rise at the beginning of trading because this is the first time that Iran has struck Israel from its territory,” said Giovanni Stanovo, an analyst at UBS.

Stonovo added, “The extent to which any jump will last… will depend on the Israeli response… Also, today’s virtual G7 meeting needs to be monitored, with a focus on whether they are targeting Iranian crude exports or not.”

Iran has significantly increased its oil exports – its main source of revenue – during Joe Biden’s term in America. Exports have fallen sharply under Donald Trump, Biden’s predecessor, whom he will face in the presidential election in November.

The Biden administration says it does not encourage Iran to increase its exports and is implementing sanctions.

A decline in Iranian exports would lead to a further rise in oil prices and the cost of gasoline in the United States, which is politically important before the election.

Another factor that needs to be monitored is any impact on shipping through the Strait of Hormuz, through which about a fifth of the world’s total daily oil consumption passes.

Iranian Revolutionary Guard Navy Commander Ali Reza Tangsiri said last Tuesday that Tehran will close the Strait of Hormuz if necessary. The Islamic Republic News Agency (IRNA) reported on Saturday that a Revolutionary Guard helicopter boarded the MSC Ares ship, flying the Portuguese flag, and headed it to Iranian territorial waters, indicating that the ship was linked to Israel.

“Crude oil prices have already included a risk premium, and the extent of its expansion depends almost exclusively on developments near Iran around the Strait of Hormuz,” said Ole Hansen of Saxo Bank.