Oil Market Uncertainty: Trumps War Escalation Fears Push Prices to Three-Year High

The oil market has been on edge in recent days, with prices surging as speculation mounts that the United States may join the ongoing conflict between Israel and Iran. Since Israel began its attacks on Iranian nuclear sites last week, oil has rallied by around 10%, with Brent trading above $76 a barrel and West Texas Intermediate (WTI) near $75. President Donald Trump's demand for Iran's "unconditional surrender" and threats against its supreme leader, Ayatollah Ali Khamenei, have fueled concerns about supply disruptions in the Middle East, which produces around a third of the world's oil. A wider conflict could drive prices even higher, with investors seeking safe havens in assets such as gold and oil volatility surging to a three-year high. The hostilities have also rattled global markets, with the futures curve suggesting that people are pricing in a tighter market. The gap between Brent's two nearest December contracts has significantly widened since the attacks and is currently in a bullish backwardation structure, signaling concerns around tightening supply. While Iran's crude-exporting infrastructure has been spared so far, most of the fallout has been confined to shipping. About a fifth of the world's crude output passes through the Strait of Hormuz, including from Saudi Arabia, and there are no signs that Tehran is seeking to disrupt shipping through the narrow waterway at the entrance to the Persian Gulf. However, a "worst-case scenario blockade of Hormuz could send prices sharply higher," said Charu Chanana, chief investment strategist at Saxo Markets Ltd. in Singapore. Israel launched surprise attacks on Iran's nuclear sites late last week, but American weapons are seen as crucial to achieving a more complete destruction of Tehran's atomic program than anything it can do alone. Prime Minister Benjamin Netanyahu has sought to draw the US deeper into the conflict, telling ABC News on Monday that the countries share a common enemy in Iran and that it's in America's interest to support Israel. Oil could break above $80 a barrel on headlines of US involvement, said Chris Weston, head of research at Pepperstone Group Ltd. Meanwhile, US industry figures showed that the nation's crude inventories fell by more than 10 million barrels last week, which would be the biggest decline since last summer if confirmed by official data later on Wednesday. In summary, the oil market is facing significant uncertainty as speculation of US involvement in the Israel-Iran conflict continues to drive prices higher. Investors are closely monitoring developments in the region and adjusting their positions accordingly.