Israel launches strikes against targets in Iran after crude futures close

Israel launched strikes against targets in Iran following the crude futures close late Oct. 25.

Crude futures had settled higher on expectations that Israel would respond to Iran's Oct. 1 missile attack, potentially escalating conflict in the Middle East.

NYMEX December WTI had settled up $1.59 at $71.78/b, and ICE December Brent climbed $1.67 higher to $76.05/b.

According to various media reports, Israel hit military targets in Iran. According to CNN, citing a Biden Administration official, while Israel alerted the White House ahead of the strikes, the US did not participate in the attacks.

Crude futures rallied in early October following the Oct. 1 Iranian missile attack on expectations that Israel might strike Iranian oil facilities. NYMEX crude climbed nearly $9 to $77.14/b by Oct. 7.

However, by mid-October NYMEX crude slipped to the $70/b level on media reports that Israeli Prime Minister Benjamin Netanyahu told the US that Israel will limit its response to targeting Iranian military installations.

While the exact targets of the Israeli strike were not yet confirmed late Oct. 25, even attacks on military targets could be bullish for crude futures considering recent Iranian warnings.

Iranian officials have prepared several responses to an Israeli attack depending on the targets, ranging from doing nothing if the attack focuses on military sites to disrupting the flow of energy commodities and shipping in the Persian Gulf and Strait of Hormuz if Israel launches a major assault on Iranian infrastructure, according to a New York Times report Oct. 25.

Nearly 14 million b/d of crude oil and 5 million b/d of refined product exports transit the Strait of Hormuz or Gulf of Oman.

"Initially, if there is an attack on Iranian oil or energy infrastructure, crude oil prices would likely spike -- perhaps by as much as $10/b," said S&P Global Commodity Insights analysts in a report. "But this is uncertain since the range of outcomes is quite wide depending on the nature and scale of any Israeli attack."

"It is unlikely that Iran could block or effectively shut the Strait of Hormuz. But Iran could still hobble the flow of oil," the analysts said. "The Strait of Hormuz is a choke point because it is only 24 miles (39 km) wide at its narrowest point between Oman and Iran. Designated navigable channels are much narrower -- just a couple of miles in each direction with an additional 2-mile buffer zone."

US Secretary of State Antony Blinken arrived in Doha Oct. 24 and announced the resumption of Gaza war ceasefire talks in coming days. Qatar and Egypt are mediating in the conflict, though it remains unclear to what degree Hamas will participate. These developments have lessened concerns about the conflict escalating, said Arne Lohmann Rasmussen, chief analyst at Global Risk Management.