Oil jumps as Israel retaliates against Iran after missile attack

OIL surged after Israel said it struck military targets in Iran, threatening a fragile ceasefire in the Middle East as talks to end the war falter.

Brent spiked as much as 4.4 per cent to US$97.15 a barrel, while West Texas Intermediate jumped above US$94 before trimming some gains. Israel hit targets in western and central Iran, the country’s defence forces said on X, after Iran earlier fired several rounds of missiles toward the nation. Those attacks were a warning to to Israel to “cease their hostile actions” in Lebanon.

US President Donald Trump had earlier urged Iran to return to talks after the Israeli strikes, and had criticised Israel for earlier attacking Beirut on Sunday, Fox News reported, citing a phone conversation. He separately told Axios he would press Israeli Prime Minister Benjamin Netanyahu not to retaliate.

There has been a flare up in hostilities over the past week across the Middle East that is threatening to derail the truce and complicate negotiations to end the war. The conflict has led to the near-closure of the crucial Strait of Hormuz, choking off supplies of crude, fuels and natural gas to global customers.

“This weekend’s escalation between Israel and Iran shows us once again how fragile the ceasefire is,” said Andy Lipow, president of Lipow Oil Associates. “Increased hostilities result in a greater geopolitical risk that the strait could be closed longer than expected, while raising the odds that Iran could take additional steps to restrict shipping in the Red Sea.”

On Sunday (Jun 7), US Central Command said it downed two Iranian attack drones that threatened international maritime traffic in Hormuz, which followed six ballistic missiles fired at Bahrain and Kuwait on Friday. Those were intercepted, while the US struck Iranian coastal surveillance radar sites.

Several sticking points remain to progressing a peace deal, including a parallel ceasefire between Israel and Lebanon. Iran has demanded a truce there before an accord can be reached, and an adviser to Supreme Leader Ayatollah Mojtaba Khamenei recently told CNN that “the ball is in Trump’s court.”

The US president told the Financial Times that his Israeli counterpart would have to accept any deal the US strikes with Iran. “I call the shots. I call all the shots,” he said. Netanyahu “doesn’t call the shots.”

On Jun 3, Israel and Lebanon agreed to a truce, which hinged on Hizbollah halting hostilities, but the Iran-backed militia rejected the ceasefire. Fighting between Israeli troops and Hizbollah continued over the weekend.

“The market was underestimating how far apart the parties involved still really were,” said Haris Khurshid, chief investment officer at Chicago-based Karobaar Capital. “The market keeps oscillating between pricing a deal and pricing the reality that neither side has really changed its core position. Every time optimism gets a little too far ahead of the facts, oil snaps back.”

Even if a US-Iran peace deal is agreed, multiple hurdles will impede normal resumption of oil flows. Among them, mines in Hormuz must be removed, shut-in fields may take months to restart, and damage to energy infrastructure from drone and missile strikes needs to be repaired.

Separately, Opec+ agreed to another increase to their oil output quotas for July of 188,000 barrels a day, even as a blockage of exports from the Persian Gulf prevents most of them from implementing it. BLOOMBERG