Brent crude jumps over 5% after US-Saudi attacks on Iran-aligned militias in Iraq

Brent crude oil prices jumped more than 5%, with barrels exceeding $88, following joint U.S.-Saudi attacks on Iran-aligned militias in Iraq. This escalation intensifies the Middle East conflict, posing a significant challenge to Iraq's new government in its efforts to disarm the Popular Mobilization Forces.

The price of Brent crude for September delivery advanced 5.07% to $88.35, after hitting a session high of $88.60. The U.S. benchmark, West Texas Intermediate (WTI), rose 4.76% to $83.03. Natural gas prices also saw a notable increase, with TTF gas nearing 60 euros per megawatt-hour.

The coordinated strikes by the U.S. and Saudi Arabia targeted positions of Iran-aligned Shiite militias in eastern Iraq. This action was a response to over thirty drone attacks by the Islamic Revolutionary Guard Corps (IRGC) against U.S. forces and Saudi energy infrastructure in the preceding 72 hours, according to U.S. Central Command (CENTCOM).

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The risk of rising energy prices is much greater in this round of escalation than in previous ones, given the degree to which strategic reserves have been depleted since the war began.

This development contrasts sharply with recent market sentiment, which had seen oil prices fall due to hopes of diplomatic progress between the U.S. and Iran. Investors had previously reduced concerns about potential supply disruptions. However, the current escalation has significantly altered the outlook.

Market strategists note that the risk of rising energy prices is considerably higher in this round of escalation compared to previous ones. This is attributed to the substantial depletion of strategic reserves since the conflict began. Furthermore, with nearly 5 million barrels per day of oil imports cut, China may struggle to absorb further supply shocks.

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After the cut of oil imports by almost 5 million barrels per day, it is unlikely that China can absorb further supply impacts.