Oil prices surge amid US intelligence suggesting Israel may strike Iran

Oil prices rose sharply following revelations that Israel may be preparing to strike Iranian nuclear facilities, according to multiple US officials familiar with newly obtained intelligence.

The report, first disclosed by CNN, comes as the Trump administration continues its efforts to broker a diplomatic agreement with Tehran.

Such a move by Israel would represent a major departure from President Donald Trump’s current approach and could ignite a broader conflict in the Middle East, a region already strained by the Gaza war that erupted in 2023 and continues to inflame regional tensions.

US officials emphasised that Israeli leaders have not yet made a final decision, and significant disagreement remains within the American government about the likelihood of such a strike. According to sources, any Israeli action would likely be influenced by their assessment of ongoing US-Iran nuclear negotiations.

Oil markets responded immediately to the geopolitical uncertainty. Bloomberg reported that crude prices have been highly volatile in recent days due to fluctuating expectations over the outcome of the US-Iran nuclear talks. A deal between Washington and Tehran could open the door for Iran to return additional oil supply to global markets, which are already projected to be oversupplied later this year. An Israeli attack, however, would disrupt that possibility and exacerbate instability across the oil-rich region, which accounts for nearly a third of global crude production.

“This is the clearest sign yet of how high the stakes are in the US-Iran nuclear talks and the lengths Israel may go to if Iran insists on maintaining its commercial nuclear capabilities,” said Robert Rennie, head of commodity and carbon research at Westpac Banking Corp. “Crude will maintain a risk premium as long as the current talks appear to be going nowhere.”

Following CNN’s report, traditional safe-haven currencies like the Swiss franc and Japanese yen experienced brief gains before settling back. The US Department of Defence and the National Security Council declined to comment on the matter, while the Israeli embassy in Washington also refused to issue a statement.

Israel has long considered targeting Iran’s nuclear infrastructure. The key challenge remains the resilience of many Iranian atomic sites, some of which are believed to be fortified against anything short of extreme military force. Previous plans for a strike were reportedly shelved under President Joe Biden, particularly following last year’s flare-up between the two countries.

Despite these threats, Iran continues to export oil even under tightening sanctions from the US, the UK, and Europe. Tehran has managed not only to maintain but recently to increase its crude output, according to analysts at Goldman Sachs. “Iran has increased its supply by about a million barrels a day over the last couple of years,” said Samantha Dart, Goldman’s co-head of global commodities research, during an appearance on Bloomberg Television. “If you remove a million barrels a day from Iran, this could represent an upside of about $8 a barrel to the crude oil price.”

Meanwhile, US oil production remains steady but constrained. ConocoPhillips CEO Ryan Lance said on May 20 that American shale output hasn’t peaked yet and could still expand — but not if prices drop near $50 a barrel.

Further complicating the picture, Iran’s Supreme Leader, Ayatollah Ali Khamenei, recently cast doubt on the prospects of the current negotiations with Washington. Should sanctions on Iranian oil exports be lifted, West Texas Intermediate (WTI) crude could drop to as low as $40 per barrel, according to Bloomberg Intelligence.

Amid this complex backdrop, geopolitical tensions are now overshadowing previously expected supply expansions, including from OPEC and its allies. With Israel weighing a potential military operation and oil markets responding to every signal, the path forward remains volatile and fraught with risk.

By Tamilla Hasanova