WTI crude futures jumped by as much as 14pc today after Israel carried out strikes against Iran, sparking concerns over possible disruptions to Middle East oil supplies.
WTI prices rose as high as $77.62/bl early, a nearly five-month high, but gave up some of the gains later in the morning. The July Nymex WTI contract was trading near $73/bl at 10:30am ET, about 7pc above yesterday's settlement price.
In equity markets, the Nasdaq was down by 1.44pc and the S&P 500 fell by 0.97pc as of 10:30am ET.
Iranian state media reported a first wave of strikes over the capital city, Tehran, at around 03:20 local time (23:50 GMT). Images and videos published by the state broadcaster showed residential towers that had been struck in the attack, causing numerous casualties.
The US said it was not involved in the Israeli strikes and advised Tehran not to retaliate against US personnel in the Middle East.
Iran's oil infrastructure appeared to be unscathed from the strikes, according to Iran's state news agency Irna and Argus sources. But the attacks have raised the prospect of a broader escalation in the world's largest oil-producing region.
Israel said the strikes targeted military facilities and infrastructure linked to Iran's nuclear program. It described the operation as an act of self-defense, claiming Iran is "closer than ever" to acquiring a nuclear weapon. Iranian officials said talks with US officials over its nuclear program scheduled for this weekend can no longer take place.
Iran informed the International Atomic Energy Agency (IAEA) that its Bushehr nuclear power plant was not targeted and that no increase in radiation levels had been observed at its Natanz site, IAEA director general Rafael Grossi said today.
The attacks have raised the risk of disruption to shipping in the region, prompting concerns over rising freight rates, insurance costs and vessel safety.
Market participants warn that freight rates could surge if the conflict drags on or if Iran launches a retaliatory strike. The region includes one of the world's most critical oil and shipping corridors, centered on the Strait of Hormuz — a chokepoint for about a fifth of global oil supply.
Ships operating in or transiting the Mideast Gulf and the Strait of Hormuz could face higher costs and delays. "Insurance companies could raise the cost of additional war risk premiums (AWRP) if the conflict continues for a long time," a shipbroker said.
Other freight market participants echoed this view. "Mideast Gulf freight rates could spike because owners will avoid going there," another source said, adding that shipowners are likely to err on the side of caution.
All Egyptian urea plants have stopped production because of a drop in natural gas flows from Israel, with suppliers withdrawing urea offers.
Greek independent oil and gas producer Energean has suspended production from its Karish gas field offshore Israel in line with an Israeli government order after the strikes.
Several international airlines have diverted or cancelled flights.
Iran's civil aviation authority announced that the airspace over Tehran will be closed "until further notice" following the initial strikes, and all flights have been grounded across the country's airports.
By Eunice Bridges
