Oil Rallies as Iran and Israel Exchange Fresh Missile Attacks

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Oil Rallies as Iran and Israel Exchange Fresh Missile Attacks.

commodities :: 2hrs ago :: source - bloomberg

By Nicholas Lua and Alex Longley

(Bloomberg) -- Oil climbed after Iran and Israel traded fire, a fresh escalation in a war that has passed the 100-day mark and ensnared global energy flows.

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Global benchmark Brent added as much as 5.4% to more than $98 a barrel. Israel said it struck military targets in Iran, retaliating against earlier missile attacks by Tehran despite US President Donald Trump urging Prime Minister Benjamin Netanyahu to refrain from hitting back.

Trump said in a post on his Truth Social platform that both sides are looking to agree to an immediate ceasefire. He added that a peace deal was “subject to ignorance or stupidity getting in its way.” Prices briefly dipped following the post.

Yemen’s Houthi rebels said they would impose a complete ban on Israeli vessels in the Red Sea, though a key industry group saw little significant impact on shipping given that many vessels are currently avoiding the waterway anyway.

Trump had earlier urged Tehran to return to talks after the attacks on Israel, Fox News reported. The US president separately told Axios he would press Netanyahu not to retaliate. The Israel Defense Forces see the campaign against Iran lasting several days and are preparing to mobilize reserve soldiers, Army Radio reported.

While oil was up sharply on the day, it remained below $100, a sign of how the market has managed to avert the worst impacts of what the International Energy Agency describes as the biggest ever supply disruption. At its peak during the conflict, the global benchmark neared $130 a barrel.

Still, with attacks now erupting again, the risk of a return to strikes on energy infrastructure has come back into focus.

“Despite repeated optimism from the US administration, a lasting peace agreement appears increasingly elusive,” said Ole Hansen, head of commodities strategy at Saxo Bank A/S. “The continued lack of progress toward restoring normal energy flows from the Middle East is reinforcing expectations of a prolonged period of elevated oil prices.”

There’s been a flare-up in hostilities over the past week across the Middle East that’s threatening to derail a truce and complicate negotiations to end the war. The conflict has led to the near-closure of the crucial Strait of Hormuz, choking off most supplies of crude, fuels and natural gas to global customers.

At the weekend, US Central Command said it had downed two Iranian attack drones that threatened international maritime traffic in Hormuz, which followed six ballistic missiles fired at Bahrain and Kuwait on Friday. Those were intercepted, while the US struck Iranian coastal surveillance radar sites.

Europe’s natural gas benchmark also jumped on Monday as the risk of a prolonged conflict threatens to choke global liquefied natural gas exports at a time when the region should be refilling inventories.

The US president told the Financial Times that the Israeli leader would have to accept any deal the US strikes with Iran. “I call the shots. I call all the shots,” he said.

Last week, Israel and Lebanon agreed to a truce, which hinged on Hezbollah halting hostilities, but the Iran-backed militia rejected the ceasefire. Fighting between Israeli troops and Hezbollah continued over the weekend.

Even if a US-Iran peace deal is agreed, multiple hurdles will impede normal resumption of oil flows. Among them, mines in Hormuz must be removed, shut-in fields may take months to restart, and damage to energy infrastructure from drone and missile strikes needs to be repaired.

--With assistance from Stephen Stapczynski, Lucia Kassai and Ben Sharples.