Oil Prices Spike on Middle East Tensions

---

Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--The geopolitical risk premium supporting the price of oil went into overdrive this week, after Israel warned of dire consequences for Iran after a missile barrage targeted Tel Aviv.

The price for Brent crude oil, the global benchmark for the price of oil, was up some 2.5% in pre-market trading on Wednesday to move into the mid-$75-per-barrel range. Prices up until the end of September had been on the downturn amid concerns about a slowdown in the global economy, particularly in China.

But a major escalation in Middle East tensions followed a series of attacks on communications systems used by the Lebanese group Hezbollah and the later killing of its leader, Hassan Nasrallah.

Fingers pointed immediately at Isreal, prompting Iran to respond, with advanced warning, by firing nearly 200 ballistic missiles at Jerusalem and Tel Aviv.

Speaking on Tuesday, after the Iranian threat ended, Israeli Prime Minister Benjamin Netanyahu warned that Tehran made "a big mistake--and will pay for it."

"The regime in Tehran does not understand our determination to defend ourselves and to exact a price from our enemies," he said.

Referring to Netanyahu as a "criminal," Iranian President Masoud Pezeshkian said the attack on Isreal, dubbed Operation True Promise II, showed that Israel's Iron Dome missile-defense system was "more fragile than glass."

Iran in April fired more than 300 drones and missiles at Isreal in retaliation for airstrikes on the Iranian diplomatic complex in Syria, but Iron Dome intercepted nearly all of those. The Associated Press and other outlets reported Wednesday that only a handful of the Iranian missiles fired Tuesday made it through the air defense system.

Much of the increase in crude oil prices, meanwhile, is a knee-jerk reaction to the conflict as few energy assets are directly threatened by the current conflict. Iran in the past, however, has attacked oil installations in Saudi Arabia and its forces remain a concern for maritime traffic moving through the region.

The Strait of Hormuz carries about 20% of the global waterborne crude oil. Elsewhere, the Houthi rebel group in Yemen, which is supported by Iran, has harassed maritime traffic in the Red Sea since regional tensions erupted last October.

Iran, meanwhile, is a member of the Organization of the Petroleum Exporting Countries (OPEC), though its options are limited due to Western-backed sanctions. Israel, for its part, was on high alert during its war with Hezbollah in 2006, worried the Lebanese group would target the Leviathan and Tamar natural gas fields in the Mediterranean Sea, which are among the largest in the world.

Tamas Varga, a market analyst for London oil broker PVM, said in a Wednesday newsletter that OPEC is expected to ease back on voluntary production restraint, while the broader economy looks rather sedated.

"The winds of economic slowdown or rising supply, however, pale in significance when it comes to the Middle East," he wrote.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking more than 200,000 current and future projects worth $17.8 trillion (USD).