(Reuters) – Oil prices rose on Friday after reports that Israel had attacked Iran roiled markets and sparked concerns that oil supplies to the Middle East could be disrupted.
Benchmark contracts rose more than $3 before slowing slightly. At 0615 GMT, futures were up $1.40, or 1.61%, at $88.51 a barrel. The most active West Texas Intermediate contract rose $1.38, or 1.68%, to $83.48 a barrel.
Israel launched an attack on Iranian soil on Friday, sources told Reuters, the latest exchange of fire between the two countries that threatens to drag the region deeper into conflict.
Iranian media reported explosions, but an Iranian official told Reuters they were caused by air defense systems. State media reported that three drones over the central city of Isfahan were shot down.
“Rising geopolitical risk premiums translate into a risk-off environment at this juncture with an increased risk of oil supply disruption at least in the near term,” said Kelvin Wong, an analyst at OANDA in Singapore .
“Further escalation [suggests] that the retaliation between the two sides will drag on longer,” said Jun Rong Yeap, market strategist at IG in Singapore.
An Iranian counterattack poses “significant risks to the conflict widening regionally and could potentially jeopardize some oil supplies. Meanwhile, oil prices could remain supported as tensions continue to heat up,” Yeap said.
Last weekend, Iran launched hundreds of drones and missiles in a retaliatory attack after a suspected Israeli attack on its embassy compound in Syria. Most of the drones and missiles were shot down before reaching Israeli territory, with minimal damage and casualties.
Investors have been closely monitoring Israel’s reaction to the Iranian drone attacks on April 13. The geopolitical risk premium on oil prices narrowed this week on the perception that any Israeli retaliation to the Iranian attack would be tempered by international pressure.
On global supply, Venezuela lost a key U.S. license that allows the OPEC member to export oil to markets around the world. The United States also announced sanctions against Iran, another OPEC member, which targeted its unmanned aerial vehicle after the country’s drone attack on Israel. Sanctions against Iran, however, exclude its oil industry.