Oil Jumps as Iran and Israel Exchange Fire With Truce at Risk

Oil surged after Iran and Israel exchanged fire, threatening a fragile ceasefire in the Middle East as talks to end the war falter.

Brent soared as much as 5% to $97.75 a barrel, while West Texas Intermediate jumped to near $95. Israel said it struck military targets in Iran, retaliating against earlier missile attacks by Tehran despite President Donald Trump’s call for Prime Minister Benjamin Netanyahu to refrain from hitting back.

The Islamic Republic launched fresh strikes targeting key facilities at Israel’s Nevatim and Tel Nof airbases in retaliation for attacks targeting multiple cities inside Iran earlier on Monday, the semi-official Fars news agency reported, citing a statement from the Islamic Revolutionary Guard Corps.

Trump had earlier urged Iran to return to talks after the Israeli strikes, and had criticized Israel for attacking Beirut on Sunday, Fox News reported. He separately told Axios he would press Netanyahu not to retaliate. There’s been a flare up in hostilities over the past week across the Middle East that’s threatening to derail the truce and complicate negotiations to end the war. The conflict has led to the near-closure of the crucial Strait of Hormuz, choking off supplies of crude, fuels and natural gas to global customers.

“This weekend’s escalation between Israel and Iran shows us once again how fragile the ceasefire is,” said Andy Lipow, president of Lipow Oil Associates. “Increased hostilities result in a greater geopolitical risk that the strait could be closed longer than expected, while raising the odds that Iran could take additional steps to restrict shipping in the Red Sea.”

On Sunday, US Central Command said it downed two Iranian attack drones that threatened international maritime traffic in Hormuz, which followed six ballistic missiles fired at Bahrain and Kuwait on Friday. Those were intercepted, while the US struck Iranian coastal surveillance radar sites.

Europe’s natural gas benchmark also jumped on Monday as the risk of a prolonged conflict threatens to choke global liquefied natural gas exports at a time when the region should be refilling inventories. Several sticking points remain to progressing a peace deal, including a parallel ceasefire between Israel and Lebanon. Iran has demanded a truce there before an accord can be reached, and an adviser to Supreme Leader Ayatollah Mojtaba Khamenei recently told CNN that “the ball is in Trump’s court.”

The US president told the Financial Times that his Israeli counterpart would have to accept any deal the US strikes with Iran. “I call the shots. I call all the shots,” he said. Netanyahu “doesn’t call the shots.” Last week, Israel and Lebanon agreed to a truce, which hinged on Hezbollah halting hostilities, but the Iranbacked militia rejected the ceasefire. Fighting between Israeli troops and Hezbollah continued over the weekend.

“The market was underestimating how far apart the parties involved still really were,” said Haris Khurshid, chief investment officer at Chicago-based Karobaar Capital LP. “The market keeps oscillating between pricing a deal and pricing the reality that neither side has really changed its core position. Every time optimism gets a little too far ahead of the facts, oil snaps back.”

Even if a US-Iran peace deal is agreed, multiple hurdles will impede normal resumption of oil flows. Among them, mines in Hormuz must be removed, shut-in fields may take months to restart, and damage to energy infrastructure from drone and missile strikes needs to be repaired.