Oil jumps over 7% amid rising Middle East tensions

• Israel targets Iran’s nuclear sites
• US calls attack ‘unilateral’
• Contagion fear rattles markets

Oil prices jumped more than 7 percent on Friday, hitting their highest in months after Israel said it struck Iran, dramatically escalating tensions in the Middle East and raising worries about disrupted oil supplies.

Brent crude futures rose $5.29, or 7.63 percent, to $74.65 a barrel by 01:42 GMT after hitting an intraday high of $75.32, the highest since April 2.

US West Texas Intermediate crude was up $5.38, or 7.91 percent, at $73.42 a barrel after hitting a high of $74.35, the loftiest since February 3.

Israel said early on Friday that it struck Iran, and Iranian media said explosions were heard in Tehran as tensions mounted over US efforts to win Iran’s agreement to halt production of material for an atomic bomb.

“The Israeli attack on Iran has heightened the risk premium further,” MST Marquee senior energy analyst Saul Kavonic said.

“The conflict would need to escalate to the point of Iranian retaliation on oil infrastructure in the region before oil supply is actually materially impacted,” he said, adding that Iran could hinder up to 20 million barrels per day of oil supply via attacks on infrastructure or limiting passage through the Strait of Hormuz in an extreme scenario.

Israel’s strikes on Iran are aimed at hurting its nuclear infrastructure, its ballistic missile factories and many of its military capabilities, Prime Minister Benjamin Netanyahu said.

US secretary of state Marco Rubio on Thursday called Israel’s strikes against Iran a “unilateral action” and said Washington was not involved while also urging Tehran not to target US interests or personnel in the region.

• Top of Trump’s to-do list: sanctions against Iran
• Trump’s Gulf trip will test regional nerves and alliances
• John Grant: Regional airlines will remain fluid in the Israel-Iran conflict

“Iran has announced an emergency and is preparing to retaliate, which raises the risk of not just disruptions but of contagion in other neighbouring oil producing nations too,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

“Although Trump has shown reluctance to participate, US involvement could further raise concerns.”

In other markets, stocks dived in early Asian trade, led by a selloff in US futures, while investors scurried to safe havens such as gold and the Swiss franc. 

IG market analyst Tony Sycamore said the alarming escalation is a blow to risk sentiment in financial markets.

“While we await further news and a potential response from Iran, we are likely to see a further deterioration in risk sentiment as traders cut risk-seeking positions ahead of the weekend,” he added.