Oil prices plunge after Israel shows restraint in strikes on Iran

Oil prices saw a sharp drop two days after Israel carried out a retaliatory strike against Iran that was far more restrained than many analysts feared, giving investors added confidence that the oil supply will not be disrupted by the conflict in the Middle East.

International and U.S. benchmarks both fell Monday, with Brent Crude dropping by at least 5.6% to $71.37 a barrel and West Texas Intermediate falling by 6% to $67.50, according to Barron's. However, prices appeared to slowly crawl back up as of 10 a.m. ET that day.

The sudden dip in prices came after Israel attacked 20 military targets in Iran that were primarily air defense and weapons production facilities. Israeli Prime Minister Benjamin Netanyahu has since described the attack as “precise and powerful,” saying the country achieved “all its objectives” in the strike.

The attack came in response to Iran’s Oct. 1 strike, in which the country fired around 180 ballistic missiles toward Israel.

As the Jewish state weighed a retaliatory strike, concerns grew that Israel would target Iran’s energy and/or oil infrastructure — a blow that would threaten global oil exports that travel through the Strait of Hormuz. Around 20% of the world’s total oil exports travel through that checkpoint, which lies between Iran and Oman.

It remains a key transit point for the United States, which imports approximately 11% of its total crude oil through the strait, according to the U.S. Energy Information Administration.

Israel complied with calls from U.S. officials to leave oil facilities alone in its attack, though some officials have said the nation should have sent a stronger message.

“We could and should have exacted a much heavier price from Iran,” Israeli opposition leader Yair Lapid said Saturday. “Iran is the head of the axis of evil and must pay a heavy price for its aggression.”

While further escalation could still threaten worldwide oil supply, traders appeared confident Monday in the market.

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“Israel’s response appears to have been measured with only Iranian air defense and missile production facilities targeted,” ING analysts said, according to the Wall Street Journal. “The more targeted response leaves the door open for de-escalation, and clearly, the price action in oil this morning suggests the market is of the same view.”

To further relieve tensions, the White House has urged Iran to not respond to the Israeli strike, with Vice President Kamala Harris calling further escalation “a mistake.”