Oil prices started the week higher after Iran launched ballistic missiles at Israel on Sunday night, heightening fears that U.S.-Iran peace talks might once again fall apart. Israel has since retaliated to the attack with strikes in western and central Iran despite calls from Trump to not respond to the Iranian missiles.
At the time of writing, Brent crude had climbed 3.45% to $96.30 per barrel, while West Texas Intermediate had gained 3.41% to trade at $93.63 per barrel.
Sunday’s missile salvo marked the first direct Iranian attack on Israel since a ceasefire between the two countries took effect in April. The strikes came just hours after Israel carried out an airstrike in Beirut targeting what it described as a Hezbollah command center. Iran had warned last week that it would launch missiles at Israel if Beirut was targeted.
Israeli authorities reported that all incoming missiles were intercepted and there were no casualties, but the lack of casualties failed to calm oil markets as fears of a major escalation in the conflict are on the rise.
President Trump attempted to reassure markets that diplomacy remains on track, telling the Financial Times shortly after Iran’s attack that the United States “calls the shots” and that Israel’s Prime Minister Netanyahu “won’t have any choice”. The President added that the attacks “will not have any effect” on the deal.
Talking to Fox News, Trump said he planned to call Netanyahu and urge Israel not to retaliate, saying, “Each of them had their fun. Israel had its strike, and Iran had its strike. We don’t need another one”.
Shortly after Trump’s statements, Israel announced it had struck “military targets belonging to the Iranian terror regime in western and central Iran”. Iranian state TV reported on Telegram that several explosions had been heard in Tehran, Tabriz, and Isfahan, before the IRGC confirmed Israel had used air-launched ballistic missiles on targets in Iranian territory.
Over the last several weeks, the continued push for a diplomatic breakthrough has provided markets with some much-needed optimism that the Strait of Hormuz may soon reopen, but signs of tightness in physical oil markets are becoming clearer by the day.
The key question now is whether Iran’s attack on Israel and Israel’s response represent a temporary setback for negotiations or the beginning of a broader collapse in ceasefire efforts.
The clock continues to tick on an oil market that is quickly running out of options to replace or recover the barrels lost through the Strait of Hormuz closure. A failure to achieve a diplomatic breakthrough will likely send prices soaring, but for now, it appears traders remain hopeful that a deal can be reached.
By Josh Owens for Oilprice.com
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