Oil prices surge to highest levels since January after Israel strikes Iran

Investing.com-- Oil prices surged higher Friday after Israel launched a series of strikes on Iran, raising fears of broader Middle East conflict and major supply disruptions.

At 04:45 ET (08:45 GMT), Brent Oil Futures surged 7.4% to $74.52 per barrel, while West Texas Intermediate (WTI) crude futures climbed 7.7% to $73.25 per barrel.

Both contracts had earlier seen the largest intraday moves for both contracts since 2022 after Russia invaded Ukraine, with both climbing to their highest levels since late January.

Oil surges after Israeli strikes on Iran

Israel launched a large‑scale airstrike on Iran early Friday, targeting Iran’s nuclear facilities, ballistic missile factories and military commanders, at the start of what the country warned would be a prolonged operation to prevent Tehran from building an atomic weapon.

Iran pledged a “harsh” retaliation against both Israel and the United States, while U.S. Secretary of State Marco Rubio said that Israel carried out its military action against Iran independently, citing self-defense as the driving motive behind the strikes.

The White House had earlier warned it would consider military measures should nuclear negotiations fail, with a key response deadline ending Thursday. 

"The key difference from previous Israel-Iran standoffs is that nuclear facilities have now been targeted, and while oil production does not seem to be affected just yet, markets have to add in a bigger risk premium given the crucial role of Iran in global oil supply," said analysts at ING, in a note.

"The next key risk is whether further escalations lead to disruptions in the Strait of Hormuz, which can seriously impact flows from the Persian Gulf, where most of OPEC’s spare capacity incidentally sits."

Oil’s geopolitical risk premium has climbed in the wake of Israeli airstrikes on Iran early on Friday, agreed analysts at Texas Capital Securities.

In a note to clients, the strategists led by Derrick Whitfield added that the threat of a potential disruption to oil flows can provide a short-term lift to oil prices.

However, they noted that risk premiums -- or the additional return an investor demands during times of political uncertainty -- could fade quickly "unless there is a lasting impact on oil supply and/or transit."

Iran currently exports roughly 1.65 million barrels per day of crude oil, as well as 400,000 barrels per day of refined petroleum products, the analysts said.

Oil set for hefty weekly gains

Today’s sharp rise in the price of oil has added to gains already seen this week as traders reacted with optimism to the agreement between China and the U.S. to avoid an all-out trade war between the two largest economies in the world, which would surely have hit global economic growth.  

Both benchmark contracts are now on course for weekly gains of over 11%.

This could cause some problems for the Trump administration, with President Trump likely keen to try to keep a lid on prices and shield U.S. consumers from the economic impact of the Middle East conflict.

"While the U.S. may well intervene with oil reserves to curb excessive price spikes, the new risk premium added to crude means inflationary risks are rising at a time when the bulk of the price impact from tariffs in the U.S. is set to materialise," said ING..

Ayushman Ojha contributed to this article