Oil Markets Jittery as US Intel Warns of Potential Israeli Attack on Iran

Rising geopolitical tensions in the Middle East have sent shockwaves through global oil markets, as new U.S. intelligence suggests Israel may be considering an attack on Iranian nuclear facilities. According to a CNN report, the Israeli military could be preparing for a potential strike, although no definitive decision has been made yet.

The news has already rattled markets. U.S. crude oil rose 1.1% on Wednesday morning to $62.70 per barrel, while Brent crude climbed 1% to $66. These gains reflect investor fears over how military escalation in the region could disrupt global oil supplies—especially at a time when markets are closely watching the outcome of the next round of U.S.-Iran nuclear talks, scheduled for this weekend.

Israel-Iran Tensions Risk Undermining Nuclear Diplomacy

The timing of the intelligence leak is significant. The upcoming U.S.-Iran nuclear negotiations were expected to ease supply concerns by potentially unlocking additional Iranian crude into the global market. However, a military strike would almost certainly derail those discussions, pushing both sides back into a more adversarial stance and potentially plunging the region into deeper instability.

Iran has repeatedly warned that it might escalate its nuclear program if diplomatic efforts fail. Enriched uranium levels in Iran are already approaching weapons-grade, a development that has alarmed Western governments. While Iran insists its program is peaceful, suspicions persist.

Robert Rennie, head of commodity and carbon research at Westpac Banking Corp, said in a comment to Bloomberg: “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.”

He added: “Crude will maintain a risk premium as long as the current talks appear to be going nowhere.”

Risk Premium Returns to Oil

The spike in oil prices reflects the return of what analysts call a “risk premium”—added value investors assign to commodities amid geopolitical instability. This effect was also observed in currency markets, with traditional safe-haven currencies like the Japanese yen and Swiss franc making modest gains in response to the CNN report.

For energy markets already on edge due to the ongoing war in Gaza and Houthi rebel attacks in the Red Sea, the prospect of an Israeli-Iranian conflict only exacerbates concerns about future supply disruptions.

Washington’s Hardline Approach

U.S. officials continue to press Iran to abandon uranium enrichment entirely. Steve Witkoff, the U.S. special envoy on Iran, stated in an ABC News interview that enrichment was non-negotiable: “We cannot allow even 1% of an enrichment capability. We've delivered a proposal to the Iranians that we think addresses some of this without disrespecting them. We want to get to a solution here.”

He added that any deal must ensure that “enrichment enables weaponisation, and we will not allow a bomb to get here.”

Iran’s Supreme Leader, Ayatollah Ali Khamenei, remains skeptical of a resolution. Earlier this week, he voiced his pessimism about the success of the current round of negotiations, claiming the West cannot be trusted.

Strategic Implications

Despite U.S. sanctions and increased pressure from its allies in Europe and the UK, Iran has managed to maintain and even increase its oil exports over recent months. This has allowed it to somewhat insulate its economy, though its position remains precarious.

A successful Israeli strike on Iranian nuclear sites would not only upend nuclear negotiations but could also provoke a broader conflict across the region. Past flashpoints between Israel and Iran have involved proxy engagements, such as through Hezbollah in Lebanon or Hamas in Gaza. A direct confrontation between the two regional powers would be far more volatile and difficult to contain.

Moreover, any escalation could encourage Iran to retaliate not only against Israeli assets but also against U.S. bases in the Middle East, or commercial shipping in the Persian Gulf, as it has threatened in the past. That could push oil prices even higher, with global economic ramifications.

Conclusion

As intelligence reports hint at a possible Israeli strike on Iran’s nuclear infrastructure, the delicate balance of diplomacy and deterrence in the Middle East hangs by a thread. With nuclear talks set to resume this weekend, any military action would likely derail progress and amplify regional instability. Oil markets, already nervous, are now reacting with a renewed sense of urgency.

For now, the world watches and waits. But with tensions this high, even a miscalculation could trigger a chain reaction that reshapes the Middle East—and global energy markets—for years to come.