Oil Markets Brace For Impact As Israel Vows Retaliation Against Iran

Crude oil futures were set to open higher Sunday after Iran launched an air assault against Israel with a barrage of missiles and drones, raising fears that the Middle East is spiraling toward a regional war that could disrupt oil supplies.

The West Texas Intermediate contract for May delivery hit a session high of $87.67 on Friday, while June Brent futures rallied to $92.18. U.S. crude closed at $85.66 a barrel Friday, while the global benchmark settled at $90.45. WTI futures began the year around $71 a barrel.

Iran launched more than 300 drones and missiles against military targets in Israel on Saturday in an attack that President Joe Biden described as “unprecedented.” The U.S. intervened to directly help Israel shoot down nearly all of the incoming munitions, Biden said in a statement Saturday.

The crude oil market is now bracing for the Netanyahu government’s response to the attack and waiting to see whether this marks the start of a direct war between Israel and Iran, according to Jorge Leon, senior vice president at Rystad Energy.

“In a worst-case scenario, a forceful retaliation by Israel could trigger a spiral of escalation, potentially leading to an unprecedented regional conflict,” Leon said Sunday in a note. “Under such circumstances, geopolitical premiums would increase significantly.”

The air assault was the first time Iran has directly attacked Israeli territory, senior U.S. military officials told reporters in a call Sunday. The attack was launched from locations in Iran, Iraq, Syria and Yemen, the officials said. More than 100 ballistic missiles were fired at Israel as well as land attack cruise missiles and drones, a senior administration official said.

The attack was retaliation for an Israeli strike against the Islamic Republic’s diplomatic facilities in Damascus, Syria earlier this month that killed seven Iranian military officials including a senior commander.

Though significant in scale, the Iranian attack caused little actual damage in Israel. The Nevatim Air Force Base in southern Israel suffered slight damage and a 10-year-old girl suffered severe injuries, according Israel Defense Forces spokesman Daniel Hagari.

Meanwhile, Israel pledged that it will “exact a price” from Iran as the country weighs its response to an unprecedented overnight barrage of drone and missile strikes while facing international pressure to de-escalate.

The overnight attack – which saw Tehran launch a series of strikes at Israel over a five-hour period – threatens to tip the crisis in the Middle East into an untempered regional war.

Israel’s war cabinet has been authorized to respond to the attack and met on Sunday, with one of its members, Benny Gantz, saying the “event is not over.”

He cited the need to “build a regional coalition and exact a price from Iran, in a way and at a time that suits us.”

Israel’s Defense Minister Yoav Gallant earlier said Israel had “thwarted this attack in a way that is unparalleled” but added “we must be prepared for every scenario.” In his first comments, Israeli Prime Minister Benjamin Netanyahu said “we have intercepted, we have contained. Together we shall win.”

An Israeli official separately told CNN that Israel will respond to Iran’s attack, but the scope of that attack has yet to be decided. The official said Israel is yet to determine whether to try and “break all the dishes” or do something more measured.

But Israel is being urged by Western allies to de-escalate an intensely fraught situation on Sunday and close, at least for now, a weeks-long chapter of uncertainty and confrontation that had spiraled out of Israel’s war with Hamas that has killed more than 33,000 Palestinians in Gaza and caused a humanitarian disaster in the enclave.

Iran’s retaliatory attack had been anticipated since a suspected Israeli strike on an Iranian diplomatic complex in Syria earlier this month, and finally came late on Saturday when over 300 projectiles – including around 170 drones and over 120 ballistic missiles – were fired toward Israeli soil. Israeli authorities said “99%” were intercepted with help from allies including the US, the UK and France. The only injury reported was a 7-year-old girl who was seriously wounded by shrapnel.

The reprisals brought years of clandestine conflict between the countries into the open, and marked the first time the Islamic Republic had launched a direct assault on Israel from its soil.

Israel and Iran have long been rivals, but tensions escalated in the wake of Hamas’ attacks on Israel, which left about 1,200 people dead. Iran backs a web of proxies across the Middle East that have frequently clashed with Israel since the attacks.

The war cabinet meeting lasted for hours and ended Sunday night without a decision on how Israel will respond, according to an Israeli official.

The war cabinet is determined to respond but has yet to decide on the timing and scope, the official said. One of the key dilemmas facing the cabinet is determining how quickly Israel should respond. The official said the Israeli military has been tasked with coming up with additional options for a response.

Iran says next attack could be ‘much bigger’
On Sunday, Iran said a “new equation” in its adversarial relationship with Israel had been opened, and warned of a “much bigger” assault on the country should Netanyahu decide on a tit-for-tat attack.

“We have decided to create a new equation, which is that if from now on the Zionist regime attacks our interests, assets, personalities, and citizens, anywhere, and at any point we will retaliate against them,” the Commander of the Islamic Revolutionary Guard Corps (IRGC) Hossein Salami told Iranian state TV. The “Zionist regime” is a term Iran uses to refer to Israel.

Earlier, Sardar Bagheri, the Chief of Staff of Iran’s Armed Forces, had said: “If the Zionist regime responds, our next operation will be much bigger.”

Iran’s attacks targeted the Israeli airbase from which, it said, the strike on the Iranian consulate in Damascus was launched. Iranian ballistic missiles that reached Israel fell on the airbase in southern Israel, and caused only light structural damage, Israel Defense Forces (IDF) spokesperson Daniel Hagari said.

Bagheri said that from Iran’s perspective, the military operation against Israel “has concluded.” But he emphasized that Iranian armed forces remain on high alert and are prepared to “act if necessary,” according to an interview on state IRINN TV on Sunday.

Those warnings came as Western nations urged Israel to descend from the brink of open warfare with its foe.

After the attack, US President Joe Biden spoke by phone with Netanyahu, and made clear that the US would not participate in any offensive operations against Iran, a senior White House administration official told CNN.

Biden told Netanyahu he should consider the events of Saturday night a “win” as Iran’s attacks had been largely unsuccessful, and instead demonstrated Israel’s “remarkable capacity to defend against and defeat even unprecedented attacks.”

Israel has told the US that it’s not “looking for a significant escalation with Iran,” a senior Biden administration told reporters Sunday.

“They’re looking to protect themselves and defend themselves,” the official said.

“The president was very clear that we’re going to help defend Israel, and he made very clear to the prime minister last night that we do have to think carefully and strategically about risks of escalation,” the official added.

Western hypocrisy ‘almost embarrassing to watch,’ Russia says at the U.N

The Russian diplomatic envoy to the United Nations criticized the double standard at the Security Council as states condemn Iran for its attack on Israel but did nothing when Russia asked to meet following the April 1 strike in Syria.

Vasily Alekseyevich Nebenzya told the fellow member states that they were witnessing “a display of hypocrisy and double standards, which it’s almost embarrassing to watch.” He went on to describe an attack against a diplomatic representation as a “casus belli,” or act of war under international law.

“And if it Western representation had been hit, you would immediately have rained down reprisals and would argued that you were right about this in this very chamber,” Nebenzya said. “And this is because for you everything that has to do with Western representations of western systems is sacred and needs to be protected.”

He called on all parties to exercise restraint, noting that Iran has indicated it considers the matter concluded and that others should follow suit.

France and U.K. condemn attacks on Israel, blame Iran for destabilization

Both representatives for France and the United Kingdom laid blame on Iran’s region for destabilizing the region, condemning Tehrans barrage of rockets against Israel.

“The scale and nature of Iran’s heinous assault the first direct attack from Iran on Israel soil poises grave risks to the security and stability of citizens across the Middle East,” said U.K. ambassador Barbara Woodward.

Woodward said it was imperative for all parties to “exercise maximum restraint” and that the U.K. welcomed actions to deter Iran. France’s representative, Nathalie Broadhurst, reiterated the countries condemnation of Iran.

“In deciding to undertake such an unprecedented act, Iran crossed a new threshold in its destabilizing action and is risking a military escalation for which it would be responsible,” Broadhurst said. “We call upon Iran and its allies to at long last, and without further delay sees their destabilizing activities throughout the region.”

Neither country addressed the April 1 attack on the Iranian diplomatic premises in Damascus.