Escalating Middle East Conflict Drives Oil Prices Above 3%, Raising Global Supply Concerns

Tensions in the Middle East are once again shaking global markets, with oil prices surging over 3% on Wednesday due to growing fears that the conflict could escalate, disrupting the region’s crucial crude output. This comes after Iran delivered a significant military blow to Israel, raising the possibility of broader hostilities that could affect oil supplies.

Brent crude, a global oil benchmark, jumped by $2.42, or 3.3%, reaching its highest level in a month at $75.98 per barrel. Similarly, U.S. West Texas Intermediate (WTI) crude spiked by $2.47, or 3.5%, to $72.30 per barrel. The price increase followed a sharp surge on Tuesday, when both benchmarks saw gains exceeding 5%, though they closed around 2.5% higher.

Iran’s missile attack on Israel, described as its largest ever, has intensified concerns about broader regional instability. While Tehran indicated that the attack was complete unless provoked further, Israel and the U.S. have vowed retaliatory action, raising fears that Iran’s oil facilities could become targets. Tamas Varga, an analyst at oil broker PVM, noted that any such retaliation could have severe consequences for the oil market, particularly if it targets key oil facilities in Iran or Saudi Arabia, or if the Strait of Hormuz is affected. Disruption in the strait, a vital chokepoint through which a significant portion of the world’s oil passes, could drive prices dramatically higher.

Further escalating the situation, Israel has expanded its military operations in southern Lebanon, targeting Iran-backed Hezbollah forces. In response to these developments, the United Nations Security Council convened a meeting on Wednesday, and the European Union has called for an immediate ceasefire to prevent further conflict.

Despite the geopolitical uncertainty, Iran’s oil production hit a six-year high in August, reaching 3.7 million barrels per day (bpd). However, analysts warn that any major escalation involving Iran could drag the U.S. into the conflict, further impacting oil supplies. Iran accounts for approximately 4% of global oil production, but potential disruptions could be partially mitigated if Saudi Arabia increases its output.

Meanwhile, OPEC+ ministers met on Wednesday to review the oil market. Although no policy changes were expected, production hikes scheduled for December may help balance the potential supply disruptions stemming from Middle Eastern tensions.