Oil Prices Remain Unstable as Israel-Iran Conflict Escalates and Threatens Regional Supply
Oil prices experienced significant volatility on Monday following a sharp 7% rally on Friday, driven by renewed hostilities between Israel and Iran. The escalating conflict has intensified concerns that the situation could spiral into a broader regional crisis, potentially disrupting vital oil exports from the Middle East.
By 07:42 GMT, Brent crude futures had inched up by 6 cents (0.08%) to $74.29 per barrel, while U.S. West Texas Intermediate (WTI) crude rose 21 cents (0.29%) to $73.19. Earlier in the session, both benchmarks spiked by more than $4 per barrel before briefly dipping into negative territory. Friday’s gains had seen both contracts soar 7%, marking their steepest daily rally since January after surging over 13% intraday.
Tensions flared further on Monday as Iran launched missile attacks on Israeli cities Tel Aviv and Haifa, damaging residential areas and sparking alarm among world leaders gathering for the G7 summit. Sunday’s tit-for-tat strikes caused civilian casualties, with both nations warning their populations to prepare for further hostilities.
The crisis has heightened anxiety about potential disruptions to oil shipments through the Strait of Hormuz—a critical chokepoint for global energy flows. Roughly 18–19 million barrels per day, or about 20% of global oil consumption, transits through the strait.
“The Israel-Iran confrontation continues to drive buying interest in crude markets, given the risk of escalation,” noted Toshitaka Tazawa, analyst at Fujitomi Securities. “Still, Friday’s surge prompted some profit-taking over fears of an overblown reaction.”
Strait of Hormuz Under Scrutiny
Markets remain on edge over possible damage to Iranian energy infrastructure and the broader implications of any blockade in the Strait of Hormuz. Tazawa warned that such a scenario could send oil prices soaring.
Iran, a key OPEC member, currently produces approximately 3.3 million barrels per day and exports over 2 million bpd. Analysts believe that OPEC and its partners, including Russia, hold enough spare capacity to counterbalance any significant shortfall.
If Iran’s exports are disrupted, Chinese refiners—currently the primary buyers of Iranian crude—would be forced to source alternative supplies, likely from other Middle Eastern producers or Russia, according to Richard Joswick, head of short-term oil analysis at S&P Global Commodity Insights.
Joswick added that this shift could raise shipping costs and insurance premiums, narrow the Brent-Dubai price differential, and weigh on refining margins, particularly in Asia.
In a related development, China’s crude oil throughput dropped by 1.8% year-on-year in May, hitting its lowest level since August. The decline was attributed to seasonal maintenance at both state-owned and private refineries, according to official data released Monday.
On the diplomatic front, former U.S. President Donald Trump expressed hope for a ceasefire between Israel and Iran, though he acknowledged that some conflicts “have to be fought out.” He affirmed ongoing U.S. support for Israel but refrained from commenting on whether he had urged Israel to pause its military actions.
German Chancellor Friedrich Merz voiced hope that the G7 leaders’ meeting in Canada could produce a unified response to de-escalate the situation.
Meanwhile, Iran has reportedly rejected ceasefire negotiations while under active attack from Israel, according to sources familiar with communications via Qatari and Omani mediators.
