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Oil soared to its highest level in more than a month on Thursday as traders speculated that Israel could engage in retaliatory strikes against Iran’s oil industry.
West Texas Intermediate climbed as much as 5.5 per cent to trade at $74 per barrel after US President Joe Biden told reporters that such a move was under discussion.
Asked whether the US would support Israel striking Iran’s oil facilities, Biden said: “We’re in discussion of that,” although in his truncated comment the US president went on to say: “I think that would be a little . . . anyway.”
Brent crude, the international benchmark, rose as much as 5 per cent to hit $77.65 per barrel.
Washington has made clear it supports Israel’s right to respond militarily to Tuesday’s missile attack from Iran, and is holding frequent calls with Israeli officials as they plan their next move.
On Wednesday, Biden spoke with the other leaders of the G7 to co-ordinate sanctions on Tehran for the attack and advise Israel on its response.
After that call, Biden said: “All seven of us agree that they have a right to respond, but they should respond in proportion.”
Israel is weighing several options to retaliate against Iran, including attacks on missile launchers or oil infrastructure.
Some Israeli officials have called for strikes against its nuclear facilities, though a person familiar with the matter said this was not being considered. Biden has also said he would oppose such an attack.
Tuesday’s strikes on Israel, in response to the assassination of Hizbollah leader Hassan Nasrallah last week, were much larger than an earlier Iranian attack in April, incorporating about twice as many ballistic missiles — although only a few got through Israel’s air defences.
US national security adviser Jake Sullivan has warned that Iran would face “severe consequences” for the strikes, which he described as “defeated and ineffective”, adding the US would “work with Israel to make that the case”.
But analysts said that the US was not offering Israel a blank cheque for any kind of response, and that its goal was to avoid prompting further Iranian escalation.
Iran currently exports around 1.6-1.8mn barrels per day of crude and condensate, of which 1.5mn b/d goes to China, along with over 0.5mn b/d of oil products, according to Energy Aspects, a consultancy.
Amrita Sen, director of research at Energy Aspects, said oil prices could be sent “spiralling higher” if Israel struck Iranian refineries and if Tehran responded by attacking other oil fields and refineries in the region.
The global oil market has been volatile since the start of the week due to the escalating tensions in the Middle East, with potential disruptions to energy exports.
However, lack of demand from China, as well as the fact that Opec+ producers are sitting on more than 5mn b/d of spare capacity, which could be brought back if Iranian supply were suddenly disrupted, had weighed on the market.