Oil Prices Surge 15% Amid Israeli Iran Tensions

Oil prices experienced a significant surge on Friday, marking their largest increase in over five years. This surge was triggered by Israeli airstrikes on Iran, which escalated tensions in the Middle East and raised concerns about potential disruptions to global oil supply. The Persian Gulf, a critical region for oil production and transportation, is home to vast oil fields and gas reserves, making it a strategic chokepoint for global oil demand. The Strait of Hormuz, in particular, is a vital passage through which roughly a fifth of global oil demand passes.

President Trump, in response to the escalating tensions, urged Iran to strike a deal before further attacks by Israel. He emphasized the need for Iran to abandon its efforts to enrich uranium to weapons-grade levels, stating, “There is still time to make this slaughter come to an end. Iran must make a deal before there is nothing left.” This call for diplomacy comes as Israeli leaders across the political spectrum have expressed support for the attack, indicating that tensions are likely to remain high.

The Israeli airstrikes targeted dozens of locations in Iran, including the capital, and resulted in the deaths of three close advisors to Supreme Leader Ayatollah Ali Khamenei. The Natanz uranium enrichment site was also damaged in the attacks. The International Atomic Energy Agency expressed concern over the implications of these attacks on nuclear safety, security, and safeguards, as well as regional and international peace.

Israeli Prime Minister Binyamin Netanyahu announced the launch of Operation Rising Lion, a targeted military operation aimed at rolling back the Iranian threat to Israel's survival. He pledged that the operation would continue for as many days as necessary to remove the threat. In response, Iran's Supreme Leader Ayatollah Ali Khamenei vowed retaliation, suggesting that the conflict could escalate further.

The surge in oil prices has significant implications for global inflation. A sustained spike in crude oil prices puts upward pressure on prices, as most fossil fuels and petrochemical feedstocks are priced off trading in North Sea Brent, the global benchmark contract. Analysts have warned that the conflict could drive the U.S. consumer price index back up to 5% in a worst-case scenario, with oil prices potentially reaching $130 a barrel. This would pose a challenge to President Trump's efforts to bring down inflation, as he had previously expressed frustration over the recent rise in energy prices.

The Israeli attack on Iran comes at a time when Prime Minister Netanyahu is facing political challenges at home. He is struggling to keep his ruling coalition together amid a growing political rift. His ultra-orthodox allies are demanding legislation that renews an exemption from military duty for haredi Jews, and failure to pass this legislation could lead to the collapse of the government. Despite these internal challenges, Netanyahu has received support from his chief critics on both the right and the left, who have closed ranks behind him during the latest crisis. Both Naftali Bennett and Yair Golan signaled their support for the war effort and Israeli troops.