Escalating Tensions in the Middle East

Investing.com — Escalating tensions in the Middle East followed an aerial attack on Israel by Iran, but analysts from UBS predict this will not lead to sustained interruptions in energy flows from the oil-rich region.

In a note to clients on Wednesday, the analysts noted that this long-standing regional conflict has caused previous periods of market volatility as investors worried over possible oil supply constraints.

Iran announced that its military barrage on Israel — the largest ever on the country — has concluded, but warned that it would resume attacks if provoked again.

Israeli Prime Minister Benjamin Netanyahu stated that a significant retaliation against Tehran’s airstrikes is forthcoming, claiming Iran “made a big mistake” and “will pay for it.”

The US has warned of “severe consequences” for Tehran’s actions. Defense Secretary Lloyd Austin emphasized that Washington is “well-postured” to defend its Middle Eastern interests.

Iran’s assault was reportedly triggered by recent Israeli actions against Lebanon-based Hezbollah and the ongoing conflict in Gaza. The US, UN, and EU have called for a ceasefire in Lebanon, but fighting persisted early Wednesday.

UBS analysts believe that while the situation may worsen, it is unlikely to escalate into an all-out war between Israel and Iran, including their allies. However, if broader conflict does arise, disruptions through the critical Strait of Hormuz or damage to oil infrastructure could push Brent crude prices above $100 per barrel for several weeks.

Oil prices surged Wednesday, adding to gains of over 5% from the previous session, spurred by Iran’s action. By 03:43 ET, Brent climbed 2.6% to $75.50 per barrel, while US crude futures (WTI) rose 2.8% to $71.80 per barrel.