Oil markets rallied sharply on Monday as traders priced in a growing geopolitical risk premium following renewed military escalation between Israel and Iran, raising concerns over potential disruptions to global energy supply routes.
Brent crude jumped $4.42, or 4.47%, to $97.15 per barrel by 0609 GMT, while US West Texas Intermediate rose $4.07, or 4.50%, to $94.61. The move erased previous losses and reflected a rapid shift in sentiment from cautious optimism to heightened risk aversion.
Market volatility intensified after reports of fresh Israeli strikes on Iranian territory, including damage to a petrochemical facility in the southwest. The strikes marked a significant escalation in targeting energy-related infrastructure, a move that traders interpreted as increasing the likelihood of broader supply disruption.
Israeli officials said additional military targets were also hit, despite reported diplomatic pressure from US President Donald Trump urging restraint in order to prevent further escalation.
For traders, the key concern remains the possibility of indirect disruption to oil flows through the Strait of Hormuz, one of the world’s most important energy chokepoints. Even without direct closure, heightened tensions in the region tend to increase shipping risk premiums and insurance costs, feeding into higher crude prices.
Analysts say markets are now reacting less to actual supply disruption and more to perceived risk, with algorithmic trading and speculative positioning amplifying price swings.
The latest rally also reflects a reversal from Friday, when crude prices fell on hopes of de-escalation. That optimism has quickly faded as diplomatic signals remain inconsistent and military activity continues across multiple fronts in the wider regional conflict involving Iran, Israel, and Lebanon.
Missile exchanges and retaliatory strikes over the weekend further undermined expectations of a near-term ceasefire, reinforcing concerns that the conflict could widen and persist longer than previously anticipated.
Despite rising tensions, OPEC+ recently agreed to increase oil production for a fourth consecutive month. However, analysts argue the impact on actual supply is limited, with some members already struggling to meet output targets due to operational constraints and regional instability.
Energy strategists say the current price movement is being driven primarily by risk sentiment rather than fundamentals, with traders closely watching for any developments that could affect maritime traffic, infrastructure security, or diplomatic negotiations.
As a result, oil markets remain highly sensitive to headlines, with even small escalations in the conflict capable of triggering outsized price reactions in an already fragile global energy environment.