Middle East Energy Flows Unlikely to Be Disrupted by Rising Tensions

Analysts from UBS have projected that the rising tensions in the Middle East, triggered by an aerial attack on Israel by Iran, are unlikely to cause persistent disruptions in energy supplies from the oil-rich region.

In a report issued on Wednesday, the analysts noted that the ongoing regional conflict has historically led to volatility in the markets, as investors express concern over potential oil supply constraints.

Iran has claimed that its recent military offensive against Israel—its largest to date—has concluded, although it has issued a warning to resume the attacks if provoked further.

Reports suggest that Israel may retaliate significantly in the coming days, potentially targeting oil production facilities in Iran and other critical locations, according to US news sources. Israeli Prime Minister Benjamin Netanyahu has vowed to respond to the airstrikes, stating that Iran “made a big mistake” and will “pay for it.”

The US government has also indicated that there will be “severe consequences” for Iran’s actions, with Defense Secretary Lloyd Austin affirming that the US is “well-postured” to protect its interests in the region.

Iran’s attack was reportedly in retaliation for recent Israeli strikes on Hezbollah in Lebanon and amid the ongoing conflict in Gaza. Calls for a ceasefire from the US, the United Nations, and the European Union continue, but hostilities in Lebanon persist.

The UBS analysts anticipate that, while the situation could further deteriorate, it is likely to “stop short of an all-out war” between Israel and Iran and their allies. However, they cautioned that if a wider conflict were to erupt, disruptions to oil supply routes, particularly through the Strait of Hormuz, or damage to essential oil infrastructure could push prices above $100 per barrel for several weeks.

Following these developments, oil prices increased on Wednesday, building on a prior gain of over 5% that was sparked by Iran’s attack. As of early Wednesday, Brent crude rose by 2.6% to $75.50 per barrel, while US West Texas Intermediate (WTI) futures climbed 2.8% to $71.80 per barrel.