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Oil prices are expected to rise when markets open on Monday following Iran's attack on Israel over the weekend after they reached a six-month high on Friday, according to analysts.
Iran launched over 300 drones and missiles at Israel from Iran, which the Israeli Defense Forces repelled the bulk of with assistance from the U.S., France, Jordan, and the United Kingdom. The IDF said that only a "few" missiles and drones entered Israel and caused "minor damages" at the Nevatim Airbase.
Iran's attack comes weeks after Iran blamed Israel for an attack on the Iranian consulate in Syria, which killed a top commander of the Iranian Revolutionary Guard Corps' overseas Quds Force. It's the first time Iran has launched strikes on Israel despite more than four decades of hostilities between the two countries.
Concerns about Iran's retaliation against Israel pushed oil prices to their highest level since October last week, with the global benchmark Brent crude oil reaching $92.18 a barrel on Friday before settling up 71 cents at $90.45 a barrel that day. U.S. West Texas Intermediate crude futures rose by 64 cents to $85.66 a barrel.
Oil prices are expected to rise Monday following Iran's attack on Israel, though the degree of the rise may depend on possible escalation. (Photo by Jakub Porzycki/NurPhoto via Getty Images / Getty Images)
"It is only reasonable to expect stronger prices when trading resumes," Tamas Varga of oil broker PVM told Reuters. "Having said that, there has been no impact on production so far and Iran has said that 'the matter can be deemed concluded.'"
"However fierce and painful the initial market reaction will be, the rally could prove to be short-lived unless supply from the region is materially disrupted," he added.
Leaders of the Group of Seven major economies condemned Iran's attack and reaffirmed the G7's commitment to Israel's security during a meeting on Sunday about the situation, the White House said in a post on X. A senior Biden administration official said the G7 leaders discussed sanctions against Iran.
The Israeli Air Force along with the U.S., France, Jordan and the UK countered most of Iran's drone and missile attack. (Photo by JALAA MAREY/AFP via Getty Images / Getty Images)
"The key is whether Iran will consider this retaliation a measured and final response unless Israel decides to escalate," Brian Jacobsen, chief economist for Annex Wealth Management, told Reuters.
"In 2020, Iran considered its response to the U.S.'s killing of General Soleimani in a measured and equitable response. If it stays tit-for-tat instead of escalating, then we will likely see a sigh of relief across equities even if oil prices, gold, the dollar, and bonds all embed a risk premium to reflect the conflict," Jacobsen added.
Iran has steeply raised oil exports, its main source of revenue, during the Biden administration after they were severely reduced due to measures taken by the Trump administration.
Israeli Ambassador to the UN Gilad Erdan shows a video of Iran's attack on Israel during a United Nations Security Council meeting at UN headquarters in New York City on April 14, 2024. (Photo by CHARLY TRIBALLEAU/AFP via Getty Images / Getty Images)
The White House has argued it isn't encouraging Iran to raise exports and is enforcing sanctions. Lower Iranian exports would lead to a further rise in oil prices and the cost of gasoline in the U.S., which would be a politically sensitive issue ahead of this fall's presidential elections.
Potential impacts on the shipping transiting through the Strait of Hormuz, a chokepoint for about one-fifth of the world's total oil consumption, will also factor into markets' pricing.
The commander of Iran's Revolutionary Guard's navy said on Tuesday that Iran could close the strait if deemed necessary, and earlier on Saturday Iran's state-run IRNA news agency said an IRGC helicopter boarded a vessel, the Portuguese-flagged MSC Aries, and took it into Iranian waters.
"Crude prices already included a risk premium, and the extent to which it will widen further almost exclusively depends on developments near Iran around the Strait of Hormuz," said Ole Hansen at Saxo Bank.
Iran unleashed an attack on Israel Saturday night, sending more than 300 uncrewed drones and missiles toward targets throughout the country, Israeli military officials said.
All but a few were intercepted by Israel and its allies, including the United States, officials said.
The Pentagon said on April 2 that Israel was behind an airstrike in Damascus, Syria, that killed seven people, including a top Iranian commander, even though Israel has not claimed responsibility for the attack.
The Saturday attack on Israel came more than six months after Hamas terrorists invaded the country on Oct. 7, 2023, after which the Israeli military began its bombardment of the Gaza Strip.
The Iranian attack resulted in only one known Israeli casualty, a girl who was severely injured when she was struck by shrapnel apparently from an intercepted missile, Israel Defense Forces spokesperson Daniel Hagari said Sunday. The hospital said Sunday the girl was 7 years old and remained in a "difficult and unstable" condition. "She suffers from a very serious head injury and her life is in danger," the hospital said.
Iranian President Ebrahim Raisi claimed Sunday that Iran had taught Israel a lesson and warned of a "heavier" response to "any new adventures against the interests of the Iranian nation." The Iranian envoy to the United Nations said Sunday that "the issue can be considered closed."
White House National Security Council spokesman John Kirby told ABC's "Good Morning America" Sunday that any response to Iran's attack is up to Israeli forces. But he stressed that President Joe Biden does not want the situation to escalate or have the U.S. drawn further into any conflict.
Israeli officials said the country's Iron Dome defense system endured a big test from Iran's attack on Saturday, intercepting 99% of the 300 "threats of various types" thrown at it.
Iran's Islamic Revolutionary Guard Corps launched 170 unmanned aerial vehicles (UAVs), more than 120 ballistic missiles, and more than 30 cruise missiles in the attack, according to Hagari.
Hagari said, "99% of the threats launched towards Israeli territory were intercepted -- a very significant strategic achievement."
What is the Iron Dome and how does it work?
Like many modern air defense systems, an Iron Dome battery uses a sophisticated radar system to track inbound missiles that are then intercepted by Tamir missiles fired from multiple launchers attached to the radar system.
Each Iron Dome battery consists of three to four launchers that can each carry up to 20 Tamir interceptor missiles.
The system can bring down rockets fired from a range of 2 to 40 miles away.
The mobile air defense system first became operational in 2011 and since then has had a very high success rate in intercepting rockets targeting Israel.
The IDF has disclosed that in May 2023, when Islamic Jihad launched a barrage of rockets toward Israel, 95.6% of the Iron Dome interceptors launched by the system successfully destroyed incoming rockets.
The IDF's information highlights the reality that an interceptor missile is not fired at every rocket that makes it into Israeli territory. Instead, based on tracking data, the system fires interceptors only if an incoming rocket poses a threat to a populated area. If not deemed to pose a threat, then the incoming rocket will land in an unpopulated area.
The Iron Dome is typically located around cities or smaller populated areas that have been targeted in the past by incoming rockets.
The huge salvo of missiles and drones launched from the arid plains of Iran toward Israel was the kind of direct conflict between the Middle East powers that the world had long feared would mark the explosion of a full-blown regional war.
But behind the unprecedented nature of the attack was a dance of diplomatic signaling that allowed both sides to claim success, raising the risk of a broader conflict without making it a certainty.
The Israeli military said 99% of the barrage was shot down and no Israelis were killed after Iran had signaled for days it was coming. Tehran said it had made its point, seeking to put the march toward a wider conflagration on hold. Israel’s backers in the US and Europe were also pressing to avoid any further escalation in calls on Sunday.
For all the steps toward the brink since Hamas attacked Israel on Oct. 7, the Jewish state and its enemies have managed to stop short of the precipice, even as violence has spread to other countries in the Middle East.
What changed over the weekend is that the latest US-led diplomatic efforts — until now focused on deescalating the crisis in Gaza — are being targeted at ensuring any response from Israel is measured, according to people familiar with the discussions.
US officials, speaking on condition of anonymity, said while the attack was meant to be deadly and destructive, Washington is urging Israel against retaliation. The concern, though, is that logic might not prevail, according to a person familiar with the discussions. Indeed, one wildcard is the pressure on Israeli Prime Minister Benjamin Netanyahu from hardliners in his government, though the success in defeating the Iranian strike may strengthen his hand.
The attack by Iran was “very calibrated” to limit the damage, said Sanam Vakil, director of the Middle East & North Africa Program at Chatham House. Still, she said, “we’re closer than ever to a broader regional war.”
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Iran’s latest assault was a dramatic escalation, with the hardline government striking directly for the first time after decades of relying on proxies like Hamas and Hezbollah to fight a shadow war with its main regional rival.
It showed with the massive barrage that it was ready to challenge Israel’s superior military head-on, something no other power had dared to do for decades. The US moved ships and planes into position and vowed to help protect Israel. The UK and Jordan were also involved.
Iran's Attack on Israel
Source: Bloomberg reporting
Oil markets steadied on Monday after Israel repulsed the attack but the prospect of $100 for a barrel of oil is now looming again, while Bloomberg Economics predicts a direct war between Israel and Iran would thrust the world economy into recession.
But Iran, seeking to avoid a spiraling conflict with Israel’s superior military, preceded the operation with days of public and private warnings. Its officials described its intent to retaliate against countries in the region, according to a person with knowledge of the briefings, a move which enabled this message to reach the US indirectly. American officials said there was no direct warning to the US.
Though the damage was limited, Iranian officials touted the operation as a successful retaliation for an April 1 attack on a diplomatic compound in Damascus that killed several of Iran’s military commanders. Iran blamed that hit on Israel, whose government hasn’t taken responsibility.
On Sunday, Israel was also celebrating having defeated the onslaught, able to demonstrate again the country’s military prowess in downing the missiles and protecting its citizens following criticism in the wake of the Hamas attack six months ago.
For Netanyahu, there’s also a renewed demonstration of support from the US and its allies after months of escalating public criticism of Israel’s deadly military operation in Gaza, including from President Joe Biden. Congressional leaders are planning a long-delayed vote on additional aid for this week.
US officials who had warned in the days before the attack that the situation was extremely dangerous were relieved the defenses had worked and damage hadn’t been worse. They called on Israel in public and in private to resist the desire to retaliate against Iran, or at least to keep whatever response there is limited enough to prevent raising the stakes further.
Israel made clear to the US on Sunday it’s not looking for a significant escalation with Iran, according to US officials. They're looking to protect themselves and defend themselves, one official said.
“Remember, these are two parties that have a very long history with one another,” said Michael Singh, a former top White House official who is now managing director at the Washington Institute for Near East Policy. “Neither would like to see this erupt into a full-scale war. Does that mean a miscalculation can’t happen? Absolutely not.”
Calls in Israel for another round of retaliation, this time directly against Iran, added to the fears. National Security Minister Itamar Ben Gvir demanded a “crushing attack.” While Netanyahu didn’t endorse that appeal, Israel’s war is still far from over.
Many in Israel aren’t clamoring for a quick flex of the muscle, partly because Iran’s attack was so unsuccessful. In the meantime, it’s distracted global attention away from the brutal war in Gaza.
That conflict has already seen some 33,000 Palestinians killed, according to Hamas, considered a terrorist organization by the US and European Union. More than 100 hostages have yet to be freed and thousands of the militant group’s fighters are still entrenched in Rafah, a city in Gaza where hundreds of thousands of refugees are sheltering.
Hamas rejected the latest cease-fire proposal from mediators following Iran’s assault, according to Mossad, the Israeli external-intelligence agency.
Israeli forces are planning an assault on Rafah, while violence also looms on Israel’s northern border, where tens of thousands of civilians have been evacuated on both sides amid fighting between Israel and Hezbollah.
For the moment, the weekend attack seemed signal that the deterrence that’s kept Iran from widening the war into a full-on battle with Israel still holds.
Iran is trying to draw a “new line,” according to Dana Stroul, who until December was the Pentagon’s deputy assistant secretary for the Middle East.
“If Israel targets any of its officials abroad, even when those officials are engaged in terrorist activities, Iran will respond with attacks like we saw last night,” she said. Israeli leaders “will need to respond,” but in a way that will “prevent opening a new escalatory cycle that tips into full scale regional war,” she said.
Last week, even as Tehran was publicly threatening massive retaliation, it was telling Arab countries in the Persian Gulf that the response would be measured and steer clear of their territory. The Houthis, Iran’s proxies in Yemen who’ve been attacking ships in the Red Sea, would have a limited role, they said.
One diplomat in the region said Tehran appeared to discuss its intent to retaliate with nearby countries in order to demonstrate restraint behind the public shock and awe it aimed to deliver after the killings of its commanders at the embassy compound in Syria, which formally qualifies as Iranian territory. The Gulf countries, desperate to avoid a wider war, underlined the importance of caution.
Israel matched Iran’s public threats with warnings of its own, backed up by public pledges of support from its allies.
On Friday, while officials were saying the attack was imminent, the US dispatched a top military commander to Israel to help coordinate the response. American and British planes and warships helped down some of the drones.
Though potentially devastating, the assault appeared designed more to demonstrate resolve than to overcome Israel’s defenses, said one Western diplomat.
Still, officials in the region said they expect some kind of response by Israel, given the unprecedented nature of Iran’s direct attack. Just how severe it is will show whether the march toward the brink of broader conflict is in fact on hold.
The lack of damage and casualties means that the Israelis could limit their strike, said Mark Cancian, a defense analyst with the Center for Strategic and International Studies in Washington. “Maybe they will attack a military base that launched the missiles, maybe a production factory, maybe Iranian naval assets,” he said. “Everyone is watching to see what the Israelis will do.”