Oil Prices Dip Following Iran's Attack on Israel

Oil prices, today, have fallen follow Iran's reprisal attack on Israel over the weekend.

Although still trading close to $90 a barrel today, Brent crude, which is a major benchmark for oil prices internationally, reduced.

Prices had already risen in expectation of action by Iran, with Brent crude nearing a six-month high last week.

Analysts said the markets would be looking to see how the conflict could affect global supply chains.

Changes in oil prices can affect the world due to countries that heavily depends on the commodity, which is used to produce fuels such as petrol and diesel. Fuel and energy prices have been a major driver behind the higher cost of living worldwide in the past couple of years.

Following Russia's invasion of Ukraine in 2022, oil prices surged to $120 per barrel due to concerns over supply disruptions caused by sanctions imposed by Western nations on Russia, a major oil exporter. 

This spike not only led to higher fuel prices but also resulted in increased costs for various goods as businesses adjusted their prices to compensate for rising expenses. 

Analysts emphasized the significance of Israel's response to the invasion for global markets in the coming days and weeks.

Israeli Defense Minister Yoav Gallant asserted that the ongoing confrontation with Iran remains unresolved, following Iran's launch of drones and missiles towards Israel in retaliation for an alleged attack on its consulate in Damascus on April 1st.

While Israel has not officially claimed responsibility for the consulate strike, it is widely suspected to have been involved.

By the end of last week, Brent crude had reached $92.18 per barrel, marking its highest level since October. However, early on Monday, it had dropped back to around $89.70.

Despite a slight decrease in oil prices, the price of gold saw an increase, hovering near record highs and trading close to $2,400 per ounce.

Gold is often considered a secure investment during uncertain times and experienced a notable rise before the weekend.

According to energy analyst Vandana Hari, the decline in oil prices indicates that the market does not currently perceive any additional supply threat.

Nevertheless, Peter McGuire from trading platform XM.com anticipated volatility in the energy market and forecasted that oil prices could surge if Israel responded forcefully to Iran's move.

Russ Mould, investment director at investment firm AJ Bell, said the markets had "started the week with relative calm".

However, he said gold prices remaining near record highs suggested a "continuing nervousness among investors".

The situation remains fraught and, beyond the geopolitical and humanitarian implications, a more widespread conflict in the Middle East could see energy prices surge and unpick central banks' careful efforts to bring down inflation," he added.

Iran is the seventh largest oil producer in the world, according to the US Energy Information Administration, and the third-largest member of the Opec oil producers' cartel.

Analysts say that a key issue for the oil price going forward is whether shipping through the Strait of Hormuz will be affected.

The Strait - which is between Oman and Iran - is a crucial shipping route, as about 20% of the world's total oil supply passes through it.

Opec members Saudi Arabia, Iran, the UAE, Kuwait and Iraq send most of the oil they export through the Strait.