Oil price surges towards $90 amid reports of Israeli attacks on Iran

A missile launched during a military exercise in Isfahan, Iran. Reuters

Oil prices surged by about 3 per cent Friday morning, nearing the $90 mark, following reports of Israeli retaliation against Iran, which caused fears of a potential disruption in crude supply.

Futures were still on track to record a weekly loss, as traders were largely expecting the conflict to be contained after Iran launched a barrage of hundreds of missiles and drones at Israel on April 13.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.23 per cent higher at $88.12 a barrel at 10.38am UAE time. The benchmark rose by about $4 a barrel to a session high of $90.75 in morning trading.

West Texas Intermediate, the gauge that tracks US crude, was up 1.35 per cent at $83.85 a barrel.

Iran fired air defence batteries on Friday morning after reports of explosions near the city of Isfahan, state-run news agency Irna reported.

ABC News quoted a US official as saying that Israel launched missiles against Iran in retaliation for missile and drone attack on April 13.

Iran said it shot down several drones and that there had been “no missile attack for now” on the country.

Several drones “have been successfully shot down by the country’s air defence, there are no reports of a missile attack for now”, Iran’s space agency spokesman Hossein Dalirian said on X.

Emirates NBD said in a research note on Friday that “oil prices were relatively muted overnight but have surged in trading today on reports of explosions in Iran”.

“Markets are responding to news flow, rather than any interruption to supply or production at this time.”

Last Saturday, Iran fired more than 300 drones and missiles at Israel in retaliation for the killing of senior members of Iran’s Islamic Revolutionary Guard Corps in an air strike in Syria on April 1.

It marked the first direct attack by Tehran on Israel rather than through proxies in Lebanon, Syria and other locations. Iran also seized a container ship with links to Israel in the Arabian Sea.

Analysts have said that while a potential disruption of Iranian crude shipments would affect oil prices, the biggest risk to energy markets arises from a potential blockage of the Strait of Hormuz, the world’s most important oil corridor.

About 30 per cent of global oil trade transits through the Strait of Hormuz, with 70 per cent going to Asia, according to the International Energy Agency.

Tehran has previously indicated it could close the maritime route if necessary.

“An escalating conflict would further increase already high energy prices, again triggering fears of high inflation due to rising energy costs amidst already slowing global economies,” Rystad Energy said in a report this week.

“High oil prices would obstruct the disinflation needed to prompt a rate cut by the US Federal Reserve,” the Norway-based consultancy said.

On Tuesday, the Federal Reserve chairman Jerome Powell said he expected recent data to delay the timing of US interest rate cuts, as figures indicated that the US central bank’s efforts to restore price stability had stalled.

The Fed has held its target range between 5.25 per cent and 5.5 per cent since the summer and is now considering the timing of cutting interest rates.

Meanwhile, the US has reimposed sanctions on Venezuela’s oil sector in response to President Nicolas Maduro’s failure to meet his election commitments.

The US Department of State said that the South American country had not fully met the commitments made under the Barbados Agreement.

The deal aimed to lay the groundwork for a free, fair and internationally monitored presidential election in 2024, involving both the government and opposition leaders.

Rystad Energy expects Venezuela’s oil production to plateau at about 910,000 barrels per day this year, before gradually declining to 890,000 bpd next year.

“In the case that sanctions were not reimposed, our updated view was that production could have increased steadily to 1.1 million bpd by the end of next year,” the consultancy said.