It seems like oil traders are holding their breath, as U.S. crude jumped around 2% on Monday, with eyes glued to the escalating tensions between Israel and Iran. The energy market has already been on edge after last week’s intense rally—triggered by fears of a potential Israeli strike on Iran’s oil infrastructure in retaliation for Tehran’s missile launch. With West Texas Intermediate and Brent soaring by over 8% and 9% respectively last week, traders appear to be hedging against what could come next.
Yet, despite all the noise, President Biden seems to be playing the role of the calming voice, signaling that the U.S. is not in favor of any attack on Iran’s oil facilities—at least for now. The situation, however, remains as fluid as ever. Israel hasn’t made its move, and there’s still uncertainty about what kind of retaliation it might consider. Experts point out that a strike on Kharg Island, through which nearly all of Iran’s crude exports pass, could send shockwaves through the oil market.
And if you think that’s bad, just wait for the worst-case scenario. If tensions escalate to the point where Iran targets the Strait of Hormuz in retaliation, we could be looking at a disruption to 20% of the world’s oil exports. Now that’s a nightmare no one in the market wants to see come true. For now, it’s a waiting game, but the stakes have never felt higher.
(Source: NYT | CNBC | S&P Global)
