Oil prices rise after US strikes on Iran nuclear sites

Oil prices have risen following the US's strikes on three Iranian nuclear sites in a major escalation of the Iran-Israel conflict.

The price of Brent crude oil, the traditional benchmark global oil price, was up 2% at $78.52 a barrel on Monday. US crude also jumped, gaining 2% to $75.34 a barrel by midday in Asia.

The attacks by the United States on Saturday, which President Donald Trump claimed caused "monumental damage", raised the stakes in the war between Israel and Iran.

The conflict began with an Israeli attack against Iran on June 13 that sent oil prices yo-yoing and rattled other markets.

Iran is a major producer of oil and also sits on the narrow Strait of Hormuz, through which much of the world’s crude passes.

Closing off the waterway would be technically difficult to pull off, but it could severely disrupt transit through it, sending insurance rates spiking and making shippers nervous to move without US Navy escorts.

Foreign Secretary David Lammy said he had told Iran it would be a "mistake" to blockade the Strait of Hormuz, as he urged Iran to take the "off-ramp" and engage in diplomacy.

Lammy also stated it would be a "catastrophic mistake" for Tehran to fire at US bases in the region in response to the US attack on Iranian nuclear facilities.

The foreign secretary told BBC Breakfast: "It would be a catastrophic mistake. It would be a mistake to blockade the Strait of Hormuz."

He said he thinks his counterpart "gets that and understands that".

“The situation remains highly fluid, and much hinges on whether Tehran opts for a restrained reaction or a more aggressive course of action,” Kristian Kerr, head of macro strategy at LPL Financial in Charlotte, North Carolina, said.

Iran may be reluctant to close down the waterway because it uses the strait to transport its own crude, mostly to China, and oil is a major revenue source for the regime.

“It’s a scorched earth possibility, a Sherman-burning-Atlanta move,” said Tom Kloza, chief market analyst at Turner Mason & Co. "It’s not probable.”

Mr Kloza thinks oil futures will ease back down after initial fears blow over.

Ed Yardeni, a long-time analyst, agreed, writing in a report that Tehran leaders would likely hold back.

“They aren’t crazy,” he wrote in a note to investors Sunday. “The price of oil should fall and stock markets around the world should climb higher.”

Economists at Panmure Liberum have calculated the global impact if Iran were to close to the strait, finding it could disrupt about a fifth of global oil and a fifth of global gas shipments.

Head of Strategy at Panmure Liberum, Joachim Klement, said it could be worse than the oil and gas shock seen in 2022 after Russia's invasion of Ukraine and the subsequent sanctions against Russian oil and gas exports.

Mr Klement said: "If the Straits of Hormuz is shut, we expect a major stagflationary shock similar to 2022.

"In this case, a 10% to 20% correction seems likely and we could see a new bear market if the trade war escalates again in early July."

But he said if the Strait of Hormuz is disrupted but not closed, "the inflation shock will be significant, but not enough to derail markets and the economies of the US, the UK and Eurozone for too long".

"In this scenario, we expect an initial correction of stock markets of 5% to 10%.

"Whether this correction lasts longer and becomes deeper depends very much on how the trade war unfolds in the next couple of weeks."

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US stock futures fell in response to the attacks. Dow futures dropped 175 points, or 0.4%. S&P 500 futures fell 0.4%, while Nasdaq futures tumbled 0.5%.

Defence-related stocks had risen when the markets opened on Monday morning.

In Tokyo, Mitsubishi Heavy Industries climbed 0.8% and ShinMaywa Industries, another major weapons maker, surged 1.5%.

The Nikkei 225 dropped 0.2%, a lesser drop than other stock market indices, due to larger losses being offset by gains from defence stocks.

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