Oil settles up 7% as Israel, Iran trade air strikes

By Erwin Seba

HOUSTON (Reuters) -Oil prices jumped on Friday and settled 7% higher as Israel and Iran traded air strikes, feeding investor worries that the combat could widely disrupt oil exports from the Middle East.

Brent crude futures settled at $74.23 a barrel, up $4.87, or 7.02%, after earlier soaring over 13% to an intraday high of $78.50, the strongest level since January 27.

U.S. West Texas Intermediate crude finished at $72.98 a barrel, up $4.94, or 7.62%. During the session, WTI jumped over 14% to its highest since January 21 at $77.62.

Both benchmarks had their largest intraday moves since 2022 when Russia's invasion of Ukraine caused a spike in energy prices.

Israel said it had targeted Iran's nuclear facilities, ballistic missile factories and military commanders on Friday at the start of what it warned would be a prolonged operation to prevent Tehran from building an atomic weapon. Iran has promised a harsh response.

Shortly after trading ended on Friday, Iranian missiles hit buildings in Tel Aviv, Israel, according to multiple media reports. Explosions were also heard in southern Israel.

U.S. President Donald Trump urged Iran to make a deal over its nuclear program to put an end to the "next already planned attacks."

The National Iranian Oil Refining and Distribution Company said oil refining and storage facilities had not been damaged and continued to operate.

Iran, a member of the Organization of the Petroleum Exporting Countries (OPEC), currently produces around 3.3 million barrels per day (bpd), and exports over 2 million bpd of oil and fuel. Spare capacity among OPEC and its allies, including Russia, to pump more oil to offset any disruption is roughly equivalent to Iran's output, according to analysts and OPEC watchers. 

The latest developments have also stoked concerns about disruptions to the Strait of Hormuz, a vital shipping passage.

"Saudi Arabia, Kuwait, Iraq and Iran are wholly locked into one tiny passage for exports," said Rabobank in a note, regarding the Strait.

About a fifth of the world's total oil consumption passes through the strait, or some 18 to 19 million barrels per day (bpd) of oil, condensate and fuel.

"Israeli action has so far avoided Iranian energy infrastructure, including Kharg Island, the terminal responsible for an estimated 90% of Iran’s crude oil exports," said

Ben Hoff, head of commodity research at Societe Generale. 

"This raises the possibility that any further escalation could follow an 'energy-for-energy' logic where an attack on one side’s oil infrastructure might invite a retaliatory strike on the other’s," Hoff said.

Iran could pay a heavy price for blockage of the Strait of Hormuz, analysts said on Friday. 

"Iran's economy heavily relies on the free passage of goods and vessels through the seaway, as its oil exports are entirely sea-based. Finally, cutting off the Strait of Hormuz would be counterproductive to Iran's relationship with its sole oil customer, China, said analysts with JP Morgan. 

In other markets, stocks dived and there was a rush to safe havens such as gold, the U.S. dollar and Swiss franc. [MKTS/GLOB]

(Reporting by Erwin Seba, Georgina McCartney, Scott DiSavino, Nicole Jao, Liz Hampton, Arathy Somasekhar, Seher Dareen, Robert Harvey and Florence Tan; Editing by Marguerita Choy and David Gregorio)