Oil prices moved higher on Monday after Iran’s Revolutionary Guards warned they could target Israel’s power plants and energy facilities supplying U.S. bases across the Middle East if Tehran’s electricity infrastructure is attacked.
By 07:31 GMT, Brent crude futures had risen $1.57 to $113.76 per barrel. U.S. West Texas Intermediate crude climbed $3.09, or 3.15%, to $101.32 per barrel. Both benchmarks experienced sharp swings in early Asian trading, briefly falling $1 after initially gaining around $1 amid volatile market conditions.
The rally in WTI also reduced its price gap with Brent, which had widened to the largest level in 13 years last week.
“Oil sentiment may lurch on threats and rhetoric in the near term, but its more durable direction will continue to be shaped by the state of Middle East oil flows,” said Vandana Hari, founder of oil market analysis firm Vanda Insights.
On Saturday, U.S. President Donald Trump warned that Washington could “obliterate” Iran’s power plants if Tehran fails to fully reopen the Strait of Hormuz within 48 hours. The warning came less than a day after Trump suggested the conflict — now entering its fourth week — might be “winding down.”
“It clearly means more escalation, which means higher oil prices. Some are incorrectly thinking, however, that Iran may cave,” said Amrita Sen, founder of Energy Aspects.
“Trump is trying to show he can out-escalate and that way ends in scorched earth for Gulf infrastructure.”
The Middle East crisis represents a “very severe” shock to global energy markets and could be worse than the two oil crises of the 1970s combined, according to Fatih Birol, executive director of the International Energy Agency.
The conflict has already damaged major energy installations in the Gulf and has nearly halted shipping traffic through the Strait of Hormuz, a strategic route responsible for roughly 20% of global oil and liquefied natural gas shipments.
Russia said Monday it opposes any attempt to block the Strait of Hormuz, though it emphasized that the issue should be considered within the broader global context, according to comments from the Russian Foreign Ministry reported by Interfax.
Analysts estimate that between 7 million and 10 million barrels per day of oil production in the Middle East may be at risk due to the ongoing conflict.
Iraq has also declared force majeure on all oilfields operated by foreign companies, according to three energy officials.
Production at Basra Oil Company has been reduced to 900,000 barrels per day from 3.3 million barrels per day, Iraqi Oil Minister Hayan Abdel-Ghani said in a statement released by the ministry.
Meanwhile, traders say Indian refiners are preparing to resume purchases of Iranian crude, while refiners in other parts of Asia are considering similar moves.