OIL FUTURES: Crude prices soar as conflict between Israel and Iran escalates

Crude oil futures soared in midmorning European trading June 13 as Israel struck Iranian nuclear facilities and military sites overnight, raising concerns about supply disruption.

At 11:05 am London time, the ICE August Brent futures contract jumped $5.93/b from the previous close to $75.29/b, while the NYMEX July light sweet crude contract climbed $5.91/b to $74.05/b.

Israel has begun targeting Iranian nuclear facilities and military sites amid ongoing US-Iran nuclear negotiations, which have shown little progress recently.

While talks are scheduled to continue this weekend, their future is uncertain following these developments, and the US has denied any involvement in the strikes, according to a note by ING's Warren Patterson. This marks a significant escalation compared with last year's strikes, which avoided Iranian nuclear sites.

"Overnight, more than 200 Israeli Air Force fighter jets, guided by precise intelligence from the Intelligence Directorate, struck over 100 targets across Iran, including the hideouts of senior operatives in the Iranian military leadership," the Israel Defense Forces said June 13 on their official Telegram channel.

This situation appears to be more than a typical warning-shot encounter between Israel and Iran, which usually fizzles out quickly, according to a note by Bjarne Schieldrop, chief commodities analyst at SEB. Unlike the all-out war seen between Russia and Ukraine, which involves widespread destruction, this seems to be a precise operation aimed at crippling Iran's ability to produce weapons-grade enriched uranium, said Schieldrop.

Iran is a significant oil producer, extracting 3.3 million b/d and exporting around 1.7 million b/d. In the event of further escalation, it's plausible to foresee disruptions to Iranian oil supplies, the ING note said.

Crude prices saw their largest single-day jump in as many as five years on June 13 following "pre-emptive" strikes by Israel against Iranian nuclear facilities.

"[The attack is] obviously bullish near term for oil prices, but the key is whether oil exports will be affected," said Richard Joswick, head of near-term oil analysis at S&P Global Commodity Insights.

"When Iran-Israel exchanged attacks last time, prices spiked, then fell once clear, not escalating and had no impact on oil supply," Joswick said, in reference to tit-for-tat exchanges between the two countries in 2024.

Israel's Prime Minister Benjamin Netanyahu said the operation would continue "for as many days as it takes to remove this threat," signaling that there would be more strikes in the days ahead.

Israel's strikes killed the chief of Iran's Islamic Revolutionary Guard Corps, Hossein Salami, as well as nuclear scientists. Early on June 13, Iran launched a retaliatory attack against Israel, officials in Jerusalem said.

The attack comes as the US and Iran have held multiple rounds of talks to reach a new nuclear deal, but Israel and the US have staunchly opposed any agreement that would let Iran enrich uranium.