Oil Falls as Investors Weigh Possibility of US Intervention in Iran-Israel Conflict

Oil prices retreated on Thursday as global investors grew increasingly cautious over the potential for U.S. intervention in the escalating conflict between Iran and Israel. While geopolitical tensions remain elevated, the uncertainty around Washington’s next move has added a new layer of volatility to energy markets already grappling with supply fears and fragile demand outlooks.

Brent crude futures slipped 2.1% to trade around $72.60 per barrel, while U.S. West Texas Intermediate (WTI) fell 2.4%, briefly dipping below the key $70 threshold. The pullback followed a short-lived rally earlier in the week, as traders priced in risk premiums amid fears of supply disruptions in the Middle East.

Market Sentiment Remains on Edge

The ongoing conflict between Iran and Israel has now entered its second week, with no immediate signs of de-escalation. The strategic Strait of Hormuz, through which roughly 20% of the world’s oil passes, remains a critical pressure point for the market. Although shipping traffic has not been materially affected thus far, the threat of further escalation continues to keep energy markets on high alert.

However, the absence of a clear stance from the United States has created more uncertainty than clarity. Former President Donald Trump, who has been active in shaping U.S. policy positions ahead of the 2024 elections, has yet to articulate a definitive position on potential U.S. involvement. His ambiguous messaging has added to investor anxiety, particularly given the historic role of U.S. diplomacy—and at times, military engagement—in the region. Reuters

Traders are treading carefully, adjusting positions and reducing exposure as they await more concrete developments. “Risk-off” sentiment is spreading across broader asset classes, as global markets attempt to gauge the full economic implications of a prolonged or expanded regional conflict.

Technical Picture: Signs of Weakness After Rally

From a technical standpoint, oil prices have entered a short-term consolidation phase. The WTI benchmark, which recently rallied to near $75 per barrel, has shown signs of exhaustion as traders lock in profits and reassess risk exposure.

A series of lower highs on the intraday charts suggest fading bullish momentum. Volume has also declined compared to last week’s spike, signaling reduced conviction behind recent price movements. The $75 level now appears to be acting as a strong resistance point, with support seen around the $68–$70 range.

While the broader trend remains cautiously bullish due to geopolitical risk premiums, the lack of fresh catalysts has created a temporary ceiling on price action. Unless tensions escalate dramatically or there is a concrete disruption to physical supply, oil may continue to trade sideways in the near term.

The Fed, Inflation, and Energy Demand

Adding to market complexity is the Federal Reserve’s latest policy stance. As expected, the Fed held interest rates steady at its recent meeting, but issued fresh warnings about potential inflationary pressures stemming from rising import tariffs and global supply chain constraints.

Should inflation reaccelerate without triggering a deep recession, oil demand could remain relatively resilient—particularly in the industrial and transportation sectors. However, that outlook is conditional on continued economic stability in key consumer regions, including the U.S., China, and the Eurozone.  Business Times

Some analysts argue that if inflation persists while growth remains intact, it could paradoxically support oil prices in the medium term. Conversely, a sudden downturn sparked by monetary tightening or geopolitical fallout could dampen both sentiment and consumption.

Eyes on Washington and the Strait of Hormuz

Looking ahead, markets will remain heavily influenced by geopolitical developments and policy signals out of Washington. Any formal response or strategic pivot by the U.S. administration—whether military, diplomatic, or economic—will likely have immediate implications for oil prices.

Additionally, the security of the Strait of Hormuz will remain a key variable. While oil flows have been uninterrupted so far, the risk of targeted disruptions, blockades, or attacks on infrastructure continues to weigh on traders’ minds.

For now, oil markets are caught between elevated geopolitical risks and a lack of decisive action from key players. As the situation evolves, price direction will hinge on clarity from Washington and on-the-ground developments in the Middle East.

Until then, the path forward remains volatile, and investors are likely to maintain a defensive stance in energy portfolios—closely monitoring both technical signals and global headlines.  TheStar

 

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