Oil prices surge amid rising tensions in Middle East

Oil prices continued to climb for the second consecutive day after Iran launched approximately 200 ballistic missiles at Israel, further raising risks to global crude supplies.

Global benchmark Brent crude surged above $74 per barrel, following a brief spike of over 5% on Tuesday in the wake of the Iranian attack, which came after a warning from the U.S. West Texas Intermediate (WTI) crude also rose, nearing $71 per barrel, although it remained below the peak reached in the previous session.

This price surge reflects investors factoring in renewed risk premiums for the world’s most crucial commodity, as the Middle East accounts for around one-third of global oil supplies. Safe-haven assets like bonds, gold, and the U.S. dollar also saw gains amid the latest escalation of the conflict.

Energy Infrastructure at risk

Although Israel and Iran have been at odds since the start of the Gaza war nearly a year ago, past price increases were short-lived due to the absence of significant oil production disruptions. Iran, for instance, was producing about 3.4 million barrels per day in August, according to OPEC.

While the immediate risk of supply disruptions has "diminished," energy infrastructure could become a target, according to RBC Capital Markets.

In a note, the firm mentioned that Iran’s export facilities on Kharg Island might be vulnerable, and that Tehran and its allies could attack energy operations “to internationalize the cost if the crisis escalates into a full-scale war.”

Israel's economy under pressure

S&P downgraded Israel’s credit rating as global markets brace for the economic fallout from the escalating Middle East conflict following Iran’s missile barrage.

Tensions have escalated dramatically after the killing of Hezbollah leader Hassan Nasrallah last week. Israel bombed central Beirut on Monday and initiated what it described as “targeted ground incursions” into Lebanon.

Meanwhile, the OPEC+ alliance is set to hold an online meeting of its Joint Ministerial Monitoring Committee on Wednesday to assess global oil markets.

The alliance is preparing to bring back some production in December, following an earlier delay.
In the U.S., the American Petroleum Institute reported that national crude stockpiles fell by 1.5 million barrels last week.