Oil Prices Surge Amid Rising Middle East Tensions

Fears of Israeli strike on Iran and possible supply disruption send crude prices climbing

Oil Markets React to Geopolitical Threat

Oil prices jumped more than 1% on Wednesday as fears grew that Israel could launch a military strike on Iranian nuclear facilities, potentially disrupting global oil supply. The report, based on US intelligence cited by CNN, suggests Israeli preparations are underway, although no final decision has been made.

• Brent crude rose by 79 cents (1.2%) to $66.17 a barrel.
• West Texas Intermediate (WTI) crude gained 82 cents (1.3%) to $62.85.

Analysts warn that any escalation could put not only Iranian oil exports at risk, but also threaten broader regional stability in the Middle East—a key supplier of global crude.

Iran’s Vital Role in Oil Supply

Iran, the third-largest producer in OPEC, exports over 1.5 million barrels per day (bpd). An attack could significantly affect this output. ING analysts warned that such an escalation may disrupt supply in "large parts of the broader region".

There are growing concerns that Iran might retaliate by blocking the Strait of Hormuz, through which a significant share of global oil—including exports from Saudi Arabia, Kuwait, Iraq, and the UAE—flows daily. Such a move could send oil prices soaring and severely impact global energy markets.

US-Iran Tensions Fuel Volatility

The price rally comes amid ongoing nuclear negotiations between the US and Iran. Despite several rounds of talks, both sides appear far from agreement. Supreme Leader Ayatollah Ali Khamenei reiterated that Iran's uranium enrichment programme is “absolutely non-negotiable”, clashing with US demands for full suspension.

CNN’s report indicates that the failure to reach a deal—especially one that allows Iran to retain uranium enrichment capabilities—could increase the likelihood of Israeli military action.

Market Watch: Inventory Builds and Supply Trends

While geopolitical tensions pushed prices up, US stockpile data offered mixed signals:

• US crude stocks rose unexpectedly by around 2.5 million barrels last week, according to the American Petroleum Institute (API).
• Gasoline inventories fell by approximately 3.2 million barrels.
• Distillates (including diesel and heating oil) dropped by 1.4 million barrels.

These figures point to a tightening middle distillate market, according to ING analysts. Investors now await confirmation from the US Energy Information Administration (EIA), whose official data is due later today.

Kazakhstan Output Defies OPEC+ Pressure

Adding to market complexity, Kazakhstan’s oil production has reportedly increased by 2% in May, despite OPEC+ efforts to limit global output and stabilise prices. This could weigh on the broader production cap agreement and influence price volatility in the coming weeks.

Summary: What It Means for the Market

• Rising tensions between Israel and Iran have added a geopolitical risk premium to oil prices.
• A potential disruption of Iranian exports—or wider regional flows—could tighten supply considerably.
• Despite rising US inventories, falling fuel stockpiles point to robust demand, keeping prices supported.
• Market watchers are eyeing EIA data for further clues on near-term price direction.

Final Thoughts

With geopolitical tensions heating up and supply concerns mounting, oil markets face renewed volatility. Investors, policymakers, and consumers alike should be prepared for continued price swings as the situation in the Middle East unfolds.

Sources: (Investing.com, Reuters)