Iran launched a massive missile and drone attack on Israel, with Israel claiming that they intercepted 99% of the attacks. The question now is whether Iran will continue with larger attacks or consider their honor satisfied. Israel is also considering their next steps, whether to retaliate directly against Iran or refrain from further violence.
Iran has stated that they have accomplished their objectives and have no further attacks planned. On the other hand, Israel has hinted at retaliating against targets inside Iran. Prime Minister Netanyahu has discussed ‘victory’ and ‘winning,’ but it is unclear what exactly constitutes victory in this situation.
The oil markets are expected to react on Monday as the situation has escalated from fears of military violence to concerns about it worsening in scale and scope. If Israel were to attack Iranian oil facilities, it could not only impact Iranian oil exports but also threaten a wider conflict. This could have implications for President Biden’s re-election prospects due to the impact on gasoline prices.
The violence in the region, including potential attacks in Lebanon, Syria, and Yemen, could keep oil prices elevated until both Israel and Iran state that they are not planning any further attacks. As long as the potential for escalation remains, there will be a security premium on the oil price. WTI is projected to stay above $90, with the threat of even higher prices with more attacks.
There is concern that a new Israeli attack could lead to retaliation from Iran against U.S. bases or Navy vessels in the area. Any U.S. response would likely target military installations rather than oil infrastructure. The fear of a wider conflict and continued violence will remain a key consideration for oil traders.
In this situation, it is the oil consumers who stand to be impacted the most. The duration and severity of the impact on oil prices will depend on the actions of Israel, Iran, and potentially the U.S. The potential for further violence and conflict in the region could continue to keep oil prices elevated until there is a clear indication of de-escalation.
