On Friday (April 19th), local time, Israel was accused of launching a counterattack against Iran, sparking concerns about further escalation of conflict in the Middle East. The rise in Asian oil prices by over 3% and the increase in gold and the US dollar to historic highs on Friday fueled these worries.
Global benchmark Brent crude oil rose by 3.63% to $90.27 per barrel, while US West Texas Intermediate crude oil surged by 3.66% to $85.76 per barrel.
Safe-haven assets also saw gains, with spot gold prices skyrocketing to a historic high of $2,411.09 per ounce before retracing some of the gains, and the US dollar climbing to multi-month highs.
The exchange rate of the Japanese yen against the US dollar increased by 0.45% to 153.93.
Iran’s Fars News Agency reported explosions near Isfahan Airport in Iran, leading to the suspension of flights to Tehran, Isfahan, and Shiraz airports.
Flight tracking website Flight Radar 24 showed that earlier on Friday, several flights were redirected to avoid Iranian airspace.
Last Sunday, Israel vowed to “exact a price” from Iran in response to a large-scale airstrike on Israel. On Saturday, Iran attacked military targets within Israel, firing over three hundred missiles and drones into Israeli territory, marking an unprecedented assault.
According to Bloomberg, Warren Patterson, head of commodity strategy at ING Groep NV in Singapore, stated, “Based on the nature of the airstrikes, we are approaching a situation where supply risks become a reality. The market may have to start pricing in more significant risk premiums.”
CNBC reported that Clay Seigle, Global Head of Oil Services at Rapidan Energy, said, “Israel struck Iran today in an apparent retaliation for Iran’s attack on Israel last Sunday, and we are now facing a direct state-to-state hot war.”
“The chapter of the ‘shadow war’ has ended,” he added.
A senior government official told NBC News that while the US has made a “rock-solid” commitment to Israel’s self-defense, President Biden also informed Israeli Prime Minister Benjamin Netanyahu that the US would not join any offensive actions against Iran.
Seigle insisted that it is too early to determine what will happen next.
However, he pointed out that a significant risk for the oil market in the escalating Middle East conflict is the potential cutoff of oil exports from the Arabian Gulf, which produces over 20 million barrels of oil per day.
The Strait of Hormuz is a crucial chokepoint between Iran and Oman, through which one-fifth of global oil production flows daily. Disruption or closure of the Strait of Hormuz could lead to a surge in oil prices.
He added, “Damaging the Strait of Hormuz would have a very severe impact on the world economy and could potentially push oil prices into three-digit territory, reaching levels that disrupt demand.”
Analysts at RBC Capital Markets LLC, including Helima Croft, emphasized in a report prior to the surge in oil prices that “we continue to highlight the increased risk of escalation in this conflict. Oil supply could become a focal point of this transformative conflict.”