WTI rises due to possible Iranian attack on Israel

U.S. crude oil prices rose 3% on Tuesday as the U.S. warned of a possible imminent attack by Iran on Israel.

Senior White House and Defense Department officials told NBC News that the U.S. “has indications that Iran is preparing to launch an imminent ballistic missile attack against Israel.”

“We are actively supporting defense preparations to defend Israel against this attack. A direct military attack by Iran against Israel will have serious consequences for Iran,” a senior White House official told NBC.

Here are energy prices as of Tuesday around 10:30 a.m. ET:

• West Texas Middle School November contract: $70.28 a barrel, up $2.11 or 3.1%.
• Brent December contract: $73.74 a barrel, up $2.04 or 2.85%.

Tensions in the Middle East escalated dramatically last week when Israel bombed the Iranian-backed Hezbollah militia with airstrikes, killing its leader Hassan Nasrallah. Israel sent ground troops to southern Lebanon on Tuesday.

Oil market and geopolitical analysts have repeatedly warned this year that an Israeli invasion of Lebanon could trigger a regional war with Iran, raising the risk of disruptions to crude supplies.

The impact on the oil market will depend on the “scale and damage” of an Iranian attack, which in turn will determine Israel's response, said Bob McNally, president of Rapidan Energy.

Clashes broke out between Iran and Israel in April, but ultimately turned away from a full-blown conflict. Iran has fired hundreds of ballistic missiles and drones against Israel after the Netanyahu government attacked an Iranian diplomatic compound in Syria.

The United States, Israel and other allies thwarted Iran's missile attack in April, giving the Netanyahu government room for a small retaliatory strike in Iran that did not lead to a further spiral of escalation.

McNally said “the crude oil risk premium is likely to dissipate quickly” if there is a repeat of “the failed Iranian and subdued Israeli exchanges in April.”

However, the analyst warned that Israel is increasingly adopting a “three eyes for an eye” approach to attacks by regional enemies.

“If Iran attacks and causes damage, the escalation cycle could accelerate to maintain and even increase a geopolitical risk premium,” McNally said.