NEW DELHI – Oil prices rose on Monday after Iran’s Revolutionary Guards said they would target Israel’s power plants and those supplying U.S. bases in the Middle East in retaliation against any attack on its electricity sector.
Brent crude futures rose $1.57 to $113.76 a barrel by 0731 GMT. U.S. West Texas Intermediate was at $101.32 a barrel, up $3.09, or, 3.15%. Both contracts swung $1 lower after an early $1 gain in volatile Asian trade.
WTI’s jump narrowed its discount to Brent, which last week had blown out to its widest in 13 years.
“Oil sentiment may lurch on threats and rhetoric in the near term, but its more durable direction will continue to be shaped by the state of Middle East oil flows,” said Vandana Hari, founder of oil market analysis provider Vanda Insights.
On Saturday, U.S. President Donald Trump threatened to “obliterate” Iran’s power plants if it did not fully reopen the Strait of Hormuz within 48 hours, barely a day after he talked about “winding down” the war, now in its fourth week.
“It clearly means more escalation, which means higher oil prices. Some are incorrectly thinking, however, that Iran may cave,” said Amrita Sen, founder of Energy Aspects.
“Trump is trying to show he can out-escalate and that way ends in scorched earth for Gulf infrastructure.”
The crisis in the Middle East is “very severe” and worse than the two oil shocks of the 1970s put together, Fatih Birol, the executive director of the International Energy Agency, said on Monday.
The war has damaged major energy facilities in the Gulf and nearly halted shipping through the Strait of Hormuz, which handles about 20% of global oil and liquefied natural gas flows.
Russia said on Monday it opposes any blockade of the Strait of Hormuz but says such issues must be viewed in the context of the broader global situation, Interfax reported, citing the Russian Foreign Ministry.
Analysts estimated a loss of 7 million to 10 million barrels per day of oil production in the Middle East.
Iraq has declared force majeure on all oilfields developed by foreign oil companies, three energy officials said.
Crude production at Basra Oil Company has been cut to 900,000 bpd from 3.3 million bpd, Iraqi Oil Minister Hayan Abdel-Ghani said in a statement issued by his ministry.
Indian refiners plan to resume buying Iranian oil while refiners elsewhere in Asia are examining such a move, traders have said.
