Oil markets pulled back on Monday despite initial gains, as traders reassessed the actual risk of supply disruptions stemming from the escalating Israel-Iran conflict. With no immediate impact on production or key export routes, prices cooled off after a sharp rally last week.

Early Gains Fizzle as Supply Stays Intact

By 12:30 GMT, Brent crude was down 1.3% at $73.32 a barrel and WTI crude dropped 1.2% to $70.46. This reversal came after both benchmarks surged more than $4 earlier in the day, following a 7% gain on Friday that marked their strongest one-day rally since January.

The initial jump reflected heightened geopolitical risk as Israel launched strikes on Iranian nuclear sites and Tehran retaliated with missile attacks on major Israeli cities, including Tel Aviv.

Strait of Hormuz in Focus

While tensions have spiked, there's been no reported damage to oil infrastructure or export routes. However, analysts warn the situation remains fluid.

According to ING, the greatest concern is a possible disruption in the Strait of Hormuz, a critical chokepoint for global oil flows:

“Almost a third of global seaborne oil trade passes through the Strait. If hostilities escalate and shipping is impacted, oil prices could surge sharply.”

So far, that risk has not materialized, prompting a retracement in prices.

Iran's Role in Global Oil Supply

Despite U.S. sanctions, Iran remains the third-largest OPEC producer, pumping 3.3 million barrels per day (bpd) and exporting roughly 1.7 million bpd. A disruption in this flow could erase the global oil surplus expected later in 2025.

Yet OPEC's 5 million bpd of spare capacity offers a buffer. If Iranian exports are curtailed, producers could step in faster than anticipated to stabilize markets.

What's Next for Oil?

Market attention will now turn to:

• Further developments in the Middle East

• Shipping safety in the Persian Gulf

• OPEC's response in case of disrupted Iranian supply

Investors are likely to remain cautious, keeping a close watch on diplomatic signals and military activity.

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