Intense fighting occurred over the weekend in Israel! Traders and Analysts are preparing for greater turmoil. There are questions about whether Israel will target more Iranian energy infrastructure. Trump is likely to call for OPEC+ to increase production, but this move could put the energy infrastructure of Saudi Arabia and the UAE at risk.
Affected by the escalating geopolitical situation in the Middle East, $Crude Oil Futures (AUG5) (CLmain.US)$Opened over 6% higher on Monday, now up 2.67%, priced at $73.19 per barrel. $XAU/USD (XAUUSD.CFD)$After a rapid retracement following an opening near $20 on Monday, currently priced at $3445.9 per ounce.
Intense fighting occurred over the weekend in Israel!
The Iranian Ministry of Health reported that Israel's attacks since Friday have resulted in at least 224 deaths. Sources indicate that at least 14 Iranian nuclear scientists were killed in the Israeli attacks. Israel targeted Iran's missile launch facilities. Evacuation warnings have been issued for personnel around Iran's nuclear reactor and weapons factories.
Sources indicate that Israel's actions against Iran will continue for weeks and have the tacit approval of the United States. Senior U.S. officials confirm that Israel has the opportunity to eliminate Iran's Supreme Leader Khamenei, but Trump has explicitly opposed this action.
Netanyahu claims that intelligence shows Iran had planned to eliminate Trump. Iran intends to transfer nuclear weapons to the Houthis. If Iran abandons its nuclear program, Israel is willing to cease operations. Regime change could be one outcome.
Iran has launched dozens of missiles at Tel Aviv, Haifa, and other areas in Israel, marking a new phase of the "Real Promise-3" operation. An Israeli military spokesperson stated that further Iranian ballistic missile attacks on Israel are expected in the coming days.
Iran has informed mediators Qatar and Oman that it is unwilling to negotiate a ceasefire with Israel during the Israeli attacks. According to AXIOS, Israel is currently also not interested in a ceasefire as it has not achieved all its objectives.
The market is bracing for high volatility.
Following Israel's attacks on Iran's energy facilities, risks to supply in the Middle East have increased, and the crude oil market is preparing for further price surges.
Last Saturday, Israel launched an attack to strike at Iran's nuclear program, temporarily crippling gas processing facilities connected to Iran's largest gas field, South Pars, and targeting fuel storage tanks. Although this attack focused on Iran's domestic energy system rather than its international market exports, crude oil prices had already seen the largest single-day increase in three years last Friday, and traders and analysts are preparing for greater turmoil.
Despite U.S. sanctions, Iran remains the third-largest oil producer in OPEC. Its ally, the Yemeni Houthis, continues to harass vessels in the Red Sea, and Iran has repeatedly threatened to block the critical shipping route of the Strait of Hormuz in the Persian Gulf, but has never truly implemented this.
Bob McNally, president of the consulting firm Rapidan Energy Advisers and former energy official at the White House, stated: "The escalating and potentially protracted conflict, as well as its spillover into civilian economic targets, should inject more risk premium into Crude Oil at the beginning of this week."
The WTI Crude Oil Futures price, which is the U.S. benchmark, rose by 14% last Friday, ultimately closing around $73 per barrel. JPMorgan forecasts that the closure of the Strait of Hormuz could push international oil prices up to $130. The rise in oil prices will exacerbate global inflationary pressures.
According to the semi-official Tasnim news agency, Israel's attack last Saturday triggered a strong explosion and fire at the 14th onshore natural gas processing plant and forced the shutdown of a production platform at the South Pars oil field.
Richard Bronze, geopolitical head at the consulting firm Energy Aspects Ltd., said: "We have now crossed that threshold, and people will question whether Israel will target more Iranian energy infrastructure. It seems we are in a cycle of escalation."
OPEC+ actions to increase production may backfire.
Helima Croft, global commodity strategist at RBC Capital Markets LLC and former CIA Analyst, stated in a report last Friday that if oil supplies are disrupted, Trump is likely to call on the Saudi-led OPEC+ alliance to utilize its substantial remaining production capacity.
However, it is still unclear whether the Organization of the Petroleum Exporting Countries (OPEC) can offset Iran's severe and prolonged production cuts, with Iran's daily oil output at about 3.4 million barrels. However, this attempt alone may put the energy infrastructure of Saudi Arabia and the UAE at risk.
Saudi Arabia supported Trump's earlier crackdown on Tehran during his first term, but its important oil processing facility in Abqaiq was destroyed by Houthi militants in 2019.
Clay Seigle, a senior researcher at the Center for Strategic and International Studies in Washington D.C., said: "OPEC's spare production capacity could be brought online to offset the reduction of Iranian oil. However, if Saudi Arabia and the UAE benefit at the expense of Tehran's interests, this is politically dangerous.”
So far, major oil facilities have escaped the current turmoil, which may provide some comfort to the market.
Vandana Hari, founder of Singapore energy consultancy Vanda Insights, said: "We may need to see evidence of escalating war — causing wider destruction and mass civilian casualties — for this expectation to change and the risk premium for crude oil to rise further."
The International Energy Agency (IEA) stated that with slowing fuel demand and recent production increases from OPEC+, global oil market supply is ample. The agency indicated that it is prepared to utilize emergency reserves if necessary.
Last Sunday, US President Trump posted on Truth Social that the two warring countries should and will achieve a peace agreement. Trump expressed dissatisfaction over rising oil prices before the attack on Israel.
Hari added that concerns over the Strait of Hormuz might be exaggerated. This extreme action would cut off Iran's own export routes and alienate its biggest customers. She said: "Although Iran has threatened to block this channel multiple times over the years, it has never actually done so, and I do not expect it to do so now."
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