Oil prices spike. Will rise more if US enters Israel-Iran fray

As Israel and Iran's conflict enters its seventh day, the air around the energy market grows thicker with fear of turmoil. Oil markets surged this week. The possibility of a direct US-Iran military confrontation brought fresh volatility and pushed Brent Crude to nearly $77 a barrel. Shipping lines may adjust their routes through the Strait of Hormuz, which will also potentially increase transportation costs. And any escalation of conflict would definitely threaten Iran's oilfields.advertisementWhy it matters: The Middle East is a critical route for global oil trade, and rising prices could have a ripple effect on inflation, shipping, and energy access worldwide. Although India no longer imports oil from Iran due to US sanctions imposed in 2019, the country still feels the seismic waves from the Middle East's instability.In numbers:Brent Crude hit around $77 on June 18, up from $69.4 a week earlier — a 10.6 per cent weekly jumpThe market has swung within an $8 range in just days, driven by volatility spikes and bullish options tradingAnalysts estimate that a $10-per-barrel geopolitical risk premium is now priced into BrentIran's daily oil exports rose 44 per cent since last Friday's Israeli attack, as Tehran tries to ship out more crude amid escalating hostilitiesadvertisementIn-depth: Iran has 157 billion barrels of crude oil, 24 per cent of the Middle East's and 12 per cent of the world's proven reserves. It's the ninth-largest oil producer, producing 3.3 million barrels daily and exporting two million barrels of crude and refined fuel. Oil prices rose swiftly this week as the US weighed the possibility of direct involvement in the Israel-Iran war. Half of Americans see Iran as a US enemy, but 60 per cent oppose US military involvement in the Israeli war, a YouGov poll found.Markets reacted to Israel's June 13 airstrikes with a jump in prices, higher tanker rates, and widening spreads in backwardation — a clear sign of stress. Traders are factoring in disruption risks, particularly around the Strait of Hormuz, a crucial oil passage. Qatar supplies a lot of liquefied natural gas. Its shipments go through Hormuz to reach global markets when supplies are low.Vessel movement through Hormuz remains steady, including from Iran's key terminal at Kharg Island, suggesting no immediate threat to shipping so far. Still, sentiment has shifted sharply, and volatility indicators have surged. War is just about to enter its second week, and oil markets respond to more than just fundamentals. The conflict adds a risk premium to prices.Tune InMust Watch

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