Oil prices experienced a significant drop on Monday following Israel's retaliatory attack on Iran, which managed to avoid hitting Tehran's crucial energy infrastructure. Brent crude, the global oil benchmark, plummeted by 5.8% to $72 a barrel, while West Texas Intermediate, the US oil benchmark, saw a 6% decline to $67 a barrel.
Israel conducted direct strikes on what it claimed to be military targets in Iran early Saturday in response to the missile attacks launched by Tehran into Israel earlier in the month. Notably, the attack seemed to intentionally steer clear of Iran's oil fields and nuclear facilities.
Despite Iran's vow to retaliate against Israel's strikes, it expressed a desire to prevent a broader conflict. Analysts at Deutsche Bank noted on Monday that the markets had adjusted by reducing some of the geopolitical risk premium associated with the conflict due to the targeted nature of the attack and the absence of immediate retaliation.
Oil prices had been on the rise since Israel began targeting Hezbollah, an Iran-backed militant group in Lebanon, in late September. Iran's response through missile launches into Israel further fueled concerns among investors about potential disruptions to oil flows through the critical Strait of Hormuz off Iran's southern coast.
The Strait of Hormuz, a narrow waterway just 21 miles wide at its narrowest point, is considered the most crucial oil transit chokepoint globally, according to the US Energy Information Administration. Approximately one-fifth of the world's oil trade passes through this strait daily, underscoring its strategic importance in the global oil market, as highlighted by Simone Tagliapietra, a senior fellow at the Brussels-based think tank Bruegel.
