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Oil futures surged as much as 5% on Sunday night after US strikes on Iran’s three main nuclear sites intensified fears of a potential supply shock, amid growing concerns that Tehran could retaliate by closing a key maritime chokepoint.
Brent crude (BZ=F), the international benchmark, gained as much as 5.7%, hovering above $80 per barrel. West Texas Intermediate (CL=F) futures also jumped more than 4% to hover around $77 per barrel.
Oil prices had already posted weekly gains on Friday following the outbreak of conflict between Israel and Iran just over a week ago.
On Sunday, traders weighed possible retaliation moves from Iran, a major oil producer and exporter, following the US's direct involvement.
According to state media, Iran’s parliament voted to close the Strait of Hormuz. The final decision on whether to shut the vital waterway — which handles roughly 20% of global oil flows — rests with Iran’s Supreme National Security Council and Supreme Leader Ayatollah Ali Khamenei.
What Wall Street once viewed as a low-probability event is now being treated as a significantly heightened risk.
"Should oil exports through the Strait of Hormuz be affected, we could easily see $100 oil," said Andy Lipow, president of Lipow Oil Associates.
Following the outbreak of the Israel-Iran war, JPMorgan analysts forecast that under a "severe outcome," a closure of the Strait of Hormuz could push oil prices to $120–$130 per barrel.
If crude climbs into that range, analysts predict gasoline and diesel prices could rise by as much as $1.25 per gallon.
“Consumers would be looking at a national average gasoline price of around $4.50 per gallon—closer to $6.00 if you’re in California,” Lipow said.
Other possible retaliatory moves from Iran could include supporting Yemen’s Houthi rebels in renewed attacks on commercial shipping.
If the conflict escalates and the US or Israel targets Iran’s oil export infrastructure, analysts warn that Tehran may retaliate by striking export facilities in neighboring countries.
“In other words, ‘If we can’t export our oil, you can’t have yours,’” Lipow said.
The key issue isn’t just the potential for disruption, but how long it lasts, Rebecca Babin, senior energy trader at CIBC Private Wealth, told Yahoo Finance on Sunday.
“If infrastructure is hit but can be quickly restored, crude may struggle to hold gains,” she said. “But if Iran’s response causes lasting damage or introduces long-term supply risk, we’re likely to see a stronger and more sustained move higher.”
Last week, JPMorgan analysts noted that since 1967 — aside from the Yom Kippur War in 1973 — none of the 11 major military conflicts involving Israel have had a lasting impact on oil prices.
