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Oil prices have skyrocketed in their biggest move for over three years as Israeli aviation against Iran threatened supply across the region and caused a rush to secure shelter assets.
In the early afternoon of Asian Brent Crude, an international benchmark, it rose by about 8% to $74.88, while the middle class in West Texas in the US rose by more than 8% to $73.67, traders are concerned that the conflict could hit energy supply in one of the world’s most important oil and gas production regions.
Michael Alfaro, chief investment officer at Gallo Partners, an energy and industry-focused hedge fund, said the attack on Iran’s nuclear facilities marked a “earthquake escalation” in the conflict.
“We are staring at the barrel of long-term conflict that is almost certain to raise oil prices,” he said.
Gold, an asset considered heaven, rose by about 1.2% during Asian trading hours to $3,427 per ounce.
There are multiple risks in the energy sector due to the new conflict.
The Strait of Hormuz, a narrow channel that separates Iran from the Gulf countries, is the conduit of about a third of the world’s seawater supply. Iran has repeatedly threatened to close in the event of an attack.
Some of the world’s largest oil fields, including Saudi Arabia and Iraq, are within reach of Iran’s missiles and drones. In 2019, Iran was widely believed to be behind the attack on Saudi Arabia’s oil facilities.
Qatar is also one of the world’s largest suppliers of liquefied natural gas (LNG), whose shipments must cross Holmos to reach international markets at the time of close global supply.
Helimacroft, a former CIA analyst currently at RBC Capital Market, questioned whether the latest strike was a restricted military involvement, as happened in the fall, or whether Iran would target the region’s energy supply.
“The key question is whether Iran will try to internationalize the costs of tonight’s action by targeting the local energy infrastructure,” Croft said.
US President Donald Trump has previously committed to keeping oil prices low and maintaining inflation.
After Russia’s full-scale invasion of Ukraine, the Biden administration released around 300 million barrels of crude oil from its largest emergency reserve, the US Strategic Oil Reserve (SPR), to keep prices low.
Trump could use SPR if oil prices were extended or supply was removed from the Middle East, but has criticized former President Joe Biden for ejecting reserves to its lowest levels for the first time in 40 years. The SPR currently has around 400 million barrels, well below that 727mn barrel capacity.
Traders will also look for answers from the OPEC+ group of oil producers. Saudi Arabia, one of the group’s most powerful members, condemned Israel’s attacks on Friday.
The group, which is a member of Iran, has raised production in recent months, but could face additional pressure from the Trump administration.
Benchmark Nikkei 225 Index stocks fell approximately 1.3%. Korean Kospi and Hong Kong Hangsen fell by 1.28% and 0.7% respectively.
Bitcoin prices fell by 3% in Asian time on Friday, coinciding with a wide range of risk assets across the region.
The price of one Bitcoin has been dropped briefly to the $103,000 level after a small gathering to $104,000.
