According to The New York Times, three Iranian officials stated that Iran's supreme leader, Ayatollah Ali Khamenei, has ordered a direct strike against Israel in retaliation for the killing of Hamas leader Haniyeh in Tehran.

Three Iranian officials, including two members of the Revolutionary Guards, said that Khamenei had issued the order at an emergency meeting of Iran's National Security Council on Wednesday morning local time, shortly after Iran announced that Mr. Haniyeh was killed.

Iran and Hamas have accused Israel of carrying out the assassination, which Israel neither confirms nor denies. At the time, Mr. Haniyeh was attending the inauguration ceremony of Iran's new president in Tehran.

Israel has long been assassinating its enemies abroad, including Iranian nuclear scientists and military commanders. Iran has been trying to balance the situation in Gaza for nearly 10 months, exerting pressure on Israel through its allies and proxy forces in the region while avoiding a full-scale war between the two countries.

In April of this year, Iran launched its largest and most open hostile attack against Israel in decades, firing hundreds of missiles and drones in retaliation for Israel's attack on its embassy district in Damascus, Syria, which killed several Iranian military commanders. However, even this "show of force" was pre-notified, and almost all weapons were shot down by Israel and its allies, causing almost no damage.

It is still unclear how strong Iran's response will be or whether it will adjust its attacks to prevent an escalation of the situation.

Iranian officials said Iranian military commanders are considering launching coordinated attacks using drones and missiles on military targets near Tel Aviv and Haifa again, but will avoid attacking civilian targets. They said one plan being considered is to launch coordinated attacks from Iran and other theaters of war where its allied forces are located, including Yemen, Syria, and Iraq, for maximum effect.

Officials said Khamenei has the final say on all national affairs and is also commander-in-chief of the armed forces, directing the military commanders of the Revolutionary Guards and the army to prepare for attack and defense plans in case of Israel or U.S. attacks against Iran.

In a public statement about Haniyeh's death, Khamenei said Iran would retaliate directly, saying, "We believe it is our responsibility to avenge him because this happened on the territory of the Islamic Republic." He said Israel was prepared to face "severe punishment."

Other Iranian officials, including the new President-elect Ebrahim Raisi, the Ministry of Foreign Affairs, the Revolutionary Guards, and the Iranian Mission to the United Nations, also publicly stated that Iran would retaliate against Israel and has the right to self-defense against violations of its sovereignty. Iranian officials were shocked by the murder and called it a red line.

For a country eager to demonstrate its strength but frustrated by its inability to stop Israeli clandestine operations on its soil, this is a humiliating security breach. Haniyeh's high profile, the presence of other allies, and the attack on a heavily secured Revolutionary Guards hotel on the same day as security was tightened in the capital, all added to the embarrassment.

Many supporters and officials of the Iranian government were outraged by the failure to prevent the assassination, saying that only a few senior security officials knew where Mr. Haniyeh was staying. Some argue that Iran's top priority should be to clean up its house and ensure the safety of senior officials.

Alireza Katebi Jahromi, a supporter of the Iranian government and journalist, posted on X saying, "Before taking revenge, first ensure the safety of the Supreme Leader."

Iranian officials do not believe that Haniyeh's assassination was just Israel taking advantage of an opportunity to kill one of its enemies, but also an insult to Iran's security apparatus, indicating that anyone in Iran, regardless of their rank, could be a target for assassination.

Analysts say Iran believes retaliation is necessary, both as revenge for Haniyeh and as a deterrent against Israel killing other powerful enemies, such as Hezbollah leader Hassan Nasrallah and Ismail Qaani, who oversees Iran's overseas armed groups.

Ali Vaez, director of Iran at the International Crisis Group, said: "Iran is likely to see no alternative to retaliation beyond blocking Israel's further attacks, defending its sovereignty, and maintaining its reputation among regional partners."

The US and Europe are urgently mediating to prevent a full-scale Middle East war.

After Israel attacked leaders of Hezbollah and Hamas in the Lebanese capital of Beirut and the Iranian capital respectively, Iran and Hezbollah vowed to retaliate, raising concerns about wider regional conflict.

US and EU diplomats are holding urgent discussions to try to prevent the threat of a full-blown regional war in the Middle East. EU's top-level diplomat, Morrell, held important talks with Iranian officials. At the same time, Brett McGurk, the US National Security Council Coordinator for the Middle East and North Africa, is holding talks in Saudi Arabia.

Officials said the focus of the talks is to persuade Iran either not to respond or to take symbolic action. The White House is trying to downplay the possibility of a full-scale war, although officials privately admit that this is one of the most sensitive moments since October 7 last year.

Due to escalating tensions between the Lebanese Hezbollah and Israel, the US State Department has advised its citizens to avoid areas within 2.5 miles (4 kilometres) of the Lebanese or Syrian border with northern Israel. Several airlines have also suspended flights to Israel to deal with the escalating situation. American Airlines (AAL.O) has suspended all flights until at least August 6th, Delta Air Lines (DAL.N) has cancelled all flights until August 1st, and British Airways will suspend flights from August 1st.

Oil prices are surging! Traders are rushing to recover oil options to avoid Middle East risks.

Following The New York Times' report on Iran's retaliation against Hamas leaders killed by Israel on its soil, international oil prices have expanded by over 5% in the last trading session. WTI crude oil rose as high as $78.55 within an hour of the official settlement. Stimulated by Israel's strike on Hamas political leaders, the rise during Wednesday's regular trading hours marks the largest surge since last October.

A senior energy trader at CIBC Private Wealth said: "Crude oil is bouncing back like a beach ball trapped underwater as the market waits for a response from Iran to recent assassination events, and the possibility that Iran could trigger broader conflicts in the region. The geopolitical tensions are escalating, as are the strong inventories and improving macro environments."

For months, traders have been concerned that the conflict could escalate into a more destructive proxy war, involving the US and Iran, and could possibly impede crude oil exports. Meanwhile, in a broader market, traders are chasing risks after the Federal Reserve signaled a closer easing stance after inflation slowed down and the labor market cooled.

On Tuesday, the volume of Brent call options hit a new high since early June, indicating that oil traders are hedging against further conflict. The indicator that measures market volatility also hit a new high in the summer. Before the recent escalation, crude oil volatility fell to its lowest point in years, with prices ranging mainly within 17 US dollars. This will be the smallest annual trading range since 2003.

According to Bloomberg compiled data, not only has the trading volume of call options increased, but the premium of put options contracts relative to call options contracts has also significantly narrowed.