How Oil Markets Are Reacting to Iran’s Attack on Israel

Oil markets shrugged off the growing tensions in the Middle East, after Iran launched a barrage of missiles and drones against Israel over the weekend. On Monday morning, prices for Brent crude oil, the international benchmark, fell by about 1 percent, to $89.49 a barrel.

So far, there has been relief that the much-anticipated attack did little damage and had no effect on supplies. Oil prices had already increased substantially in the days before the assault, rising above the symbolic $90 a barrel level last week.

There is a sense in the market that prices are higher than would be justified based on the fundamentals of supply and demand. In a note after Iran’s onslaught on Saturday, Goldman Sachs estimated this risk premium at $5 to $10 a barrel.

Rystad Energy, a consulting firm, calculates that on fundamentals, Brent should be selling for $84 a barrel.

Essentially, the markets seem to be waiting to see what happens next. Iran appears to want to end this particular episode for now, while Israel is pondering its response.

The big worry is that if the conflict escalates, Iran, which occupies a strategic position on the shipping lanes from the Persian Gulf, could resort to “attacking tankers, pipelines and critical energy infrastructure,” said Helima Croft, an analyst at RBC Capital Markets, an investment bank.