Attack on key Iranian gas field marks escalation of conflict, lifting global oil prices by nearly 4%

The Iran conflict is upending global energy markets and trade, halting much of the traffic in the Strait of Hormuz. - ANDER GILLENEA / AFP via Getty Images

Global oil prices climbed by nearly 4% Wednesday after Iran said there was an attack on one of its key natural-gas fields and reportedly warned that it could strike oil facilities across the Persian Gulf in retaliation.

“The attack on Iran’s gas infrastructure increases the risk that Iran retaliates against regional infrastructure more aggressively,” and it increases the odds that the Houthis, an Iran-backed militant group, intervene and attack oil tankers bringing Saudi oil out from the Red Sea, said Josh Young, chief investments officer at Bison Interests, an oil-and-gas investment firm.

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Also on Wednesday, the Trump administration announced it will issue a temporary waiver on a law known as the Jones Act. The waiver will allow foreign ships to carry fuel to refineries on the East Coast.

Read:What is the Jones Act? Trump’s waiving the century-old shipping law — and this stock is getting hurt.

The Treasury Department also issued a license to authorize U.S. entities to engage in many types of transactions with Venezuela’s state-owned oil company, Petróleos de Venezuela, and its subsidiaries. The move aims to help “reopen and restore” Venezuela’s energy sector, according to a post on X from the Treasury.

The potential for Iran to retaliate against the attack on its natural-gas field and strike regional energy infrastructure more aggressively is really what is “moving the needle” on oil prices Wednesday, said Young at Bison. “Obviously, the other news is material.”

On Wednesday, Brent crude for May delivery BRN00 BRNK26 , the global oil benchmark, climbed 3.8% to settle at at $107.38 a barrel on ICE Futures Europe.

U.S. West Texas Intermediate crude, meanwhile, posted only a modest gain after the Energy Information Administration reported a weekly rise of more than 6 million barrels in domestic commercial crude supplies Wednesday. April WTI crude CL.1 CLJ26 edged up 0.1% to settle at $96.32 a barrel, down from a session high of $99.41. It widened its price gap with the global Brent benchmark, which has seen prices impacted much more by the events in the Middle East.

Israel’s targeting of Iranian oil and gas infrastructure appears to be an “escalation in the ongoing conflict,” said Michael Brown, senior research strategist at Pepperstone.

That not only opens a “new front in the war, but also massively [raises] the risk of Iran retaliating with strikes of their own on energy infrastructure in the Gulf,” Brown said. That, in turn, can heighten the likelihood of significant supply disruptions, he said.

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This comes on top of the Strait of Hormuz remaining essentially impassable, which continues to tighten conditions in the physical commodity market every day, said Brown.

A waiver on the Jones Act, which had mandated that only U.S.-made ships may transport cargo between domestic ports, is “not going to have an immediate impact on oil prices,” Tariq Zahir, managing member at Tyche Capital Advisors, told MarketWatch. It will take “at least a couple of months to have any impact and it isn’t going to be meaningful.”

Still, “we have to have safe and free passage to help ease energy prices,” Zahir said. While some ships are reportedly getting through the Strait of Hormuz with permission from Iran, these are too few in number to have an impact, he said.

White House press secretary Karoline Leavitt wrote on X Wednesday that the Jones Act waiver will “allow vital resources like oil, natural gas, fertilizer, and coal to flow freely to U.S. ports for sixty days.”

That could help calm U.S. costs of gasoline and diesel at the pump, which have been rising along with oil prices.

Oil prices have surged since Israel and the U.S. began attacking Iran at the end of February and after Tehran responded by all but closing the Strait of Hormuz, through which much of the world’s oil is transported.

There could be more of a risk premium baked into oil prices going forward because of the conflict. Even if the Strait of Hormuz fully opens, it may be difficult for oil prices to fall back to levels seen before the Iran war began, with the summer driving season in the U.S. set to start in May.

On Feb. 27, the last trading day before the conflict began, Brent was around $72 a barrel, while WTI was trading around $67.

The Energy Information Administration recently lifted its second-quarter WTI price forecast by nearly 58% to $84.56 a barrel and its second-quarter Brent forecast by 58% to $90.56, even with its assumption that shut-in oil production in the Gulf will peak in early April.

Jamie Chisholm contributed.

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