Financial markets experienced significant movements following a CNN report that new US intelligence suggests Israel is preparing for a potential attack on Iranian nuclear facilities. This report has raised concerns about an escalation of conflict in the Middle East, leading to a sharp increase in oil and gold prices as investors seek safe havens.
Oil Market Responds with Dramatic Price Increases
Brent crude jumped above $66 per barrel, while US West Texas Intermediate crude surged by as much as 3.5%. Markets are primarily reacting to uncertainty about future supplies from this key production region.
Iran, as the third-largest producer among OPEC members, represents a significant portion of global supply. A potential Israeli strike could:
- Threaten oil supplies not only from Iran but from the entire broader region
- Trigger Iranian retaliation in the form of a blockade of the Strait of Hormuz, through which oil flows from Saudi Arabia, Kuwait, Iraq, and the United Arab Emirates
- Derail any progress in US-Iranian negotiations on the nuclear program
“This is the clearest sign yet of how high the stakes are in the US-Iran nuclear talks and the lengths Israel may go to if Iran insists on maintaining its commercial nuclear capabilities,” said Robert Rennie, head of commodity and carbon research for Westpac Banking Corp.
Geopolitical Tensions Overshadow Market Fundamentals
Current geopolitical concerns have temporarily outweighed expectations of looser market conditions in the second half of the year, when OPEC and its allies plan to increase market supply.
Goldman Sachs analysts highlight an important factor:
- “Iran has increased its supply by about a million barrels a day over the last couple of years,” said Samantha Dart, co-head of global commodities research at Goldman Sachs
- “If you remove a million barrels a day from Iran, this could represent an upside of about $8 a barrel to the crude oil price”
ING analysts add: “Such an escalation would not only put Iranian supply at risk, but also in large parts of the broader region.”
Gold as a Safe Haven in Times of Uncertainty
Gold prices also rose in response to reports of a possible Israeli attack. The spot price of gold increased by 0.4% to $3,302.02 per ounce, while June futures contracts strengthened by 0.6% to $3,303.62.
The rise in precious metal prices is supported by:
- Increased demand for safe assets due to geopolitical tensions
- Weakening of the US dollar following the downgrade of the US credit rating by Moody’s
- Persistent concerns about US fiscal health and uncertainty about trade negotiations
Gold comfortably remains above the $3,000 per ounce level and is less than $200 away from the record high reached earlier this month.
US Oil Inventories Rising Despite Global Tensions
Despite the current rise in oil prices, there are signs of improving supply. Oil inventories in the United States, the world’s largest oil consumer, rose by 2.5 million barrels in the week ending May 16, according to sources citing American Petroleum Institute data.
Kazakhstan has also increased oil production by 2% in May despite pressure from OPEC+ to reduce output, according to an industry source.
Uncertain Future of US-Iran Nuclear Negotiations
The US and Iran have held several rounds of talks this year on Iran’s nuclear program. US President Donald Trump has revived a campaign of stricter sanctions on Iranian crude exports to compel them to abandon their nuclear ambitions.
Despite these negotiations, US officials and Iran’s Supreme Leader Ayatollah Ali Khamenei made statements on Tuesday indicating that both sides remain far from a resolution:
- “There are indirect nuclear talks between the US and Iran, which, if successful, could give the market further upside. However, these talks appear to be running out of steam,” ING analysts said
- According to CNN, it’s not clear whether Israeli leaders have made a final decision on carrying out the strikes
The possibility of an Israeli attack further complicates an already tense situation and adds volatility to financial markets.
