If the conflict remains contained and doesn’t disrupt oil production or transportation routes, the effect on oil prices may be limited

Rashid Husain SyedIt was coming. Everyone understood it was just around the corner. The element of surprise was missing.

As the weekend approached, an Iranian attack on Israeli targets was imminent. CNN reported Friday morning that the United States expected Iran to carry out strikes against multiple targets inside Israel in the coming days, and the Biden administration was on high alert for what could be the eruption of a significantly volatile and unpredictable period in the Middle East.

Iranian attack on Israeli soil was looming over the next 24 to 48 hours, the Wall Street Journal also reported on Friday, citing American intelligence reports.

On the same day, U.S. President Joe Biden predicted that an Iranian attack was coming “sooner than later.”

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The possibility of an Iranian strike on Israeli targets became evident when Iran vowed that it would respond to the Israeli airstrikes of Apr. 1 that targeted the Iranian consulate building in Damascus, Syria. The strike resulted in the deaths of several high-ranking Islamic Revolutionary Guard Corps commanders, including two generals. The only issue left was the timing of the Iranian response.

Following the intelligence warnings and media reports of an impending Iranian response, oil prices surged Friday morning. West Texas Intermediate (WTI) and Brent crude oil prices saw substantial increases, with WTI rising by US$2.02 and Brent climbing by US$1.78 per barrel by 9:20 a.m. ET Friday.

On Saturday, the inevitable occurred: Iran launched around 300 missiles and drones at Israel. However, according to most reports, the attacks lasted only a few tense hours and were perceived as calculated and measured, with enough warning that Israel and its allies were fully prepared. Analysts noted that the intention didn’t seem to be inflicting large-scale damage or fatalities in Israel but rather to fulfill Iran’s promise to retaliate for Israel’s Apr. 1 attack on the Iranian consulate in Damascus “at a time and place of its choice.” By Friday morning, the timing of the attack had become an open secret.

Interesting – isn’t it?

Furthermore, Iran refrained from deploying its proxies, Hezbollah and the Houthis, to augment the impact of its attack on Israel. This suggests that Tehran has exercised restraint in its response to the Apr. 1 attack in Damascus.

Oil prices dropped on Monday following Iran’s retaliatory attack on Israel. Brent crude, a significant benchmark for global oil prices, saw a decrease but remained near US$90 per barrel. Prices had surged in anticipation of Iran’s actions, with Brent crude approaching a six-month high last week.

Oil prices already include a “war premium” to account for factors such as the re-routing of oil vessels in response to missile attacks by the Houthi militia in Yemen and the continuing Hamas-Israel conflict.

The direction of oil market prices this week hinges on Israel’s’ potential response to Iran’s’ “measured” attack. If Israel chooses to retaliate, a tit-for-tat scenario could develop, leading to further escalation by Iran. Reports suggest that Biden is urging Israeli Prime Minister Netanyahu to exercise restraint and prevent the regional conflict from escalating. Global calls for restraint are increasing, with the G-7 already in the picture.

Whether Netanyahu will heed Biden’s advice is another question.

If nothing more happens, oil markets will likely stabilize after some fluctuations this week, remaining within their current range. Ultimately, the situation appears to be much ado about nothing. For Iran, it may have been primarily a public relations manoeuvre, while for Israel, it provided an opportunity to assert its position as a nation under attack.

Toronto-based Rashid Husain Syed is a highly-regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. Besides his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.

For interview requests, click here.

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