Oil prices surged more than 4% on Tuesday amid escalating conflict between Iran and Israel, although key oil and gas infrastructure has so far avoided significant disruption.
Brent crude closed at $76.45 per barrel, rising $3.22 or 4.4%, while U.S. West Texas Intermediate (WTI) settled at $74.84, up $3.07 or 4.28%.
Despite the lack of major interruptions to oil supply, Iran halted part of its gas production at the South Pars field — jointly operated with Qatar — following an Israeli airstrike that sparked a fire on Saturday. Israel also struck Iran’s Shahran oil storage facility.
According to Phil Flynn, senior analyst at Price Futures Group, the renewed cycle of airstrikes between the two nations has brought geopolitical risk back to a market already constrained by tight supply-demand dynamics.
“This isn’t a short-term flare-up; it may play out more like the Russia-Ukraine situation,” Flynn noted.
Adding to concerns, two oil tankers collided near the Strait of Hormuz — a key global oil chokepoint — where incidents of electronic interference have reportedly increased. While disruption of traffic through the Strait remains a worry, Saxo Bank analyst Ole Hansen said the actual risk is minimal.
“There’s no incentive to block the Strait. Iran relies on oil revenue, and the U.S. wants to keep prices and inflation under control,” Hansen said.
The heightened uncertainty has prompted speculation about how Iran’s leadership might respond if internal stability appears threatened. John Kilduff of Again Capital said this fear is contributing to a “security premium” of around $10 per barrel.
Still, underlying market fundamentals suggest supplies remain adequate. The International Energy Agency (IEA) on Tuesday slightly lowered its global oil demand forecast by 20,000 barrels per day and raised its supply growth estimate to 1.8 million barrels per day, an increase of 200,000 bpd from the previous month.
Investor attention also turned to central bank actions, with the U.S. Federal Open Market Committee scheduled to meet later in the day, noted PVM Associates analyst Tamas Varga.
