Iran drone attack on Israel raises regional concerns for oil market

Iran launched a barrage of drones at Israel, officials said April 13, in a significant escalation of tensions in the oil and gas rich Middle East, after earlier impounding an Israeli-linked cargo vessel near the Strait of Hormuz.

"A direct Iranian attack on Israel is very alarming, especially for the oil market," said Jim Burkhard, S&P Global Commodity Insights' head of crude oil, energy and mobility research. "The war is not about oil, but oil flows could be impacted in a major way. But it is too early to tell for sure."

Crude prices had rallied on the final day of trading April 12 amid warnings from US President Joe Biden that an attack by Tehran on Israel was expected "sooner rather than later." Platts, a part of S&P Global Commodity Insights, assessed Dated Brent at $93.35/b, up 1.67% on the day.

A military conflict between Iran and Israel could quickly embroil other nearby major oil and gas producers, including Tehran's OPEC counterparts Saudi Arabia and the UAE, which have previously found their refineries, pipelines and ports targeted by Iranian-backed Houthi militia in Yemen.

The Middle East accounts for some 40% of global oil exports. Iran has also threatened to shut down the Strait of Hormuz connecting the Persian Gulf to the Arabian Sea, through which some 20 million b/d of seaborne crude, condensate and refined fuels pass through, along with almost 11 Bcf/d of LNG.

Following the attack, Biden said "nearly all of the incoming drones and missiles" launched April 13 against Israel had been intercepted. The attack comes with the region on edge over Tehran's threats to retaliate for a suspected Israeli missile strike April 1 on Iran's embassy in Damascas, Syria, which killed seven Iranian Revolutionary Guard Corps officers.

Iran's permanent mission to the UN said on X that the launch was, for now, a one-off response to the embassy strike.

"The matter can be deemed concluded. However, should the Israeli regime make another mistake, Iran's response will be considerably more severe," the mission said, adding that the "US must stay away" from the conflict.

Explore the Energy Security Sentinel™

Ship seizure

Earlier on April 13, Iran's military forces seized the MSC Aries, a Portuguese-flagged container ship with Israeli-linked ownership about 50 nautical miles off the eastern UAE port of Fujairah near the Strait of Hormuz.

The ship was intercepted in a helicopter operation and redirected into Iranian waters, Iranian state news agency IRNA reported. An unnamed Iranian official told state television that the MSC Aries' GPS had been switched off and that the crew did not respond to questions prior to the seizure.

The ship is owned by Zodiac Maritime, a subsidiary of Zodiac Group, which is chaired by Israeli magnate Eyal Ofer. Zodiac Maritime referred questions about the vessel's status to MSC, the operator of the ship and its lessee.

MSC, in a statement, confirmed that the MSC Aries was "boarded by Iranian authorities via helicopter as she passed the Strait of Hormuz" at 0243 GMT.

"She has since been diverted from her itinerary towards Iran," the company added. "She has 25 crew onboard, and we are working closely with the relevant authorities to ensure their wellbeing and safe return of the vessel."

Middle East shipping has already been significantly affected by the Israel-Hamas war, with Houthi militia targeting ships in and around the Bab al-Mandab Strait that connects the Red Sea with the Gulf of Aden, forcing many shippers to opt for much more expensive and time-consuming voyages around Africa's Cape of Good Hope.

The seizure of the MSC Aries signals potential disruptions to shipping through the Strait of Hormuz.

"An already bad situation in the Red Sea and Gulf of Aden has just got worse and could put ocean freight container imports and oil exports in the Middle East at risk," said Peter Sand, chief analyst at shipping intelligence firm Xenata.