What impact will Israel's retaliatory strikes on Iran have on oil markets?

Israel’s retaliatory attacks on Iran are expected to have a “muted impact” on oil markets as they avoided oil facilities, the targeting of which could have caused supply disruptions from the Opec member. Israel 's military on Saturday launched strikes against Iran in retaliation for the missiles it fired at Israel earlier this month. Targets included missile manufacturing centres and “additional Iranian aerial capabilities”, according to the Israel military. Some hours later, Israel said it concluded the strikes and warned Iran against responding. “Israel's choice of military targets, rather than airports, oil assets, or nuclear facilities, makes for the least disruptive version of retaliation as far as markets are concerned,” said Hasnain Malik, head of emerging and frontier markets equity strategy at Tellimer told The National. “Of course, direct attacks between Israel and Iran are an extremely serious matter but, in the context of all the red lines of conflict crossed in the last year, this is a relatively mild and calibrated escalation in the range of expectations that should have a muted impact on the oil price and regional markets.” Iran’s military has confirmed that Israeli strikes early on Saturday were against bases in Ilam, Khuzestan and Tehran provinces. Tasnim news agency said the attack was launched from outside Iran’s borders, causing only “limited damage”. Iran briefly suspended flights following the Israeli air strikes but later resumed operations. Brent had soared following Iran’s ballistic missile attack on Israel earlier this month but most of those gains have been erased as demand concerns over slowing Chinese growth have overshadowed supply fears. Supply from non-Opec+ members is also rising, affecting oil prices. Non-Opec+ oil supply, driven by the Americas, is set to rise by 1.5 million barrels a day this year and next, with the US, Brazil, Guyana and Canada contributing more than 1 million bpd annually, the International Energy Agency said in its oil market report this month. “The reprisal may pivot investor attention back on to the looming oversupply miring global oil markets in 2025,” said Ehsan Khoman, head of commodities, ESG and emerging markets at MUFG. “Oil prices are poised to trade lower on Monday’s open with what’s left of the geopolitical risk premium likely ebbing in the absence of physical supply disruptions.” Oil prices posted a weekly gain driven by concerns about Middle East supply disruptions even as demand concerns continued to weigh on oil markets. Brent , the benchmark for two thirds of the world’s oil, rose 2.25 per cent to end at $76.05 a barrel while West Texas Intermediate, the gauge that tracks US crude, settled up 2.27 per cent at $71.78 a barrel. The retaliatory Israeli strikes on Iran are expected to “calm tensions for the time being, putting downwards pressure on crude. Brent could resume its slide towards $70 in the coming week,” said Vandana Hari, chief executive of Singapore-based Vanda Insights. However, any further escalation between the two countries “could drive the market to the upside even more in particular if other parties are drawn into the conflict”, Joseph Dahrieh, managing principal at Tickmill brokerage firm, said. “At the same time, other factors could continue to affect the market such as oil demand expectations which have been weighing on prices for a while as traders focus on China and the US and the direction of the economic growth in both countries,” Mr Dahrieh said. China's crude consumption has shown signs of decline in recent months, which analysts attribute to both a slowing economy and a long-term shift towards the use of electric vehicles. The country has announced several stimulus measures this year to address slowing manufacturing, a property market downturn and rising unemployment.

What impact will Israel's retaliatory strikes on Iran have on oil markets?

Economic slowdown in China continues to impact demand for oil