Oil Prices Spike and Russian Markets Rally Amid Escalating Israel-Iran Conflict

Oil prices surged on Friday after Israel announced it had conducted strikes on numerous locations throughout Iran, including facilities linked to its nuclear program. This development raised concerns that a broader conflict in the Middle East could disrupt global oil supplies.

The increase in oil prices stands to benefit Russia, which had been preparing for a budget deficit and sluggish GDP growth due to falling oil prices and a strengthening ruble.

Brent crude jumped by as much as 13%, peaking at $78.50 per barrel, according to Reuters.

The U.S. benchmark, West Texas Intermediate (WTI), rose to $77.62 before slightly pulling back. As of 10:20 a.m. Moscow time, both benchmarks remained more than 5% higher, trading at $72.90 and $71.50 per barrel, respectively.

Bloomberg reported that these oil price increases represented the largest intraday spike since the immediate aftermath of Russia’s full-scale invasion of Ukraine in 2022.

The Russian stock market experienced a modest uptick at the beginning of trading on Friday, with companies in the oil and gold sectors seeing the most significant gains in their stock prices. Shares of Rosneft increased by 3.54% around noon Moscow time, while Lukoil shares rose by 2.05%.

Both the Moscow Exchange (MOEX) Russia Index and the RTS were up by 0.33%.

According to MOEX data, the market capitalization of Rosneft, Lukoil, Gazprom Neft, Surgutneftegaz, and Tatneft jumped by 550 billion rubles ($6.9 billion) within just three hours of trading.

In contrast, stock markets outside Russia experienced declines as investors moved away from riskier assets. Futures linked to the Dow Jones Industrial Average fell by 1.17%, and S&P 500 futures dropped by 1.25%. European stock contracts also saw a decrease of 1.5%, as reported by Bloomberg.

“We are observing typical risk-averse behaviors,” said Matthew Haupt, portfolio manager at Wilson Asset Management, in an interview with Bloomberg. “Our focus now is on the rapidity and magnitude of Tehran’s response, which will influence how long these price movements last. Historically, such spikes often diminish after the initial shock.”

Earlier this year, a resurgence in OPEC+ production combined with weakened global demand had caused oil prices to drop below $60 a barrel, posing a threat to the Russian federal budget, which was predicated on oil prices around $69.70 per barrel.

The Kremlin expressed concern over Israel’s recent airstrikes on Iran, denouncing what it termed a “dramatic escalation” of tensions between the two nations.

Israeli Prime Minister Benjamin Netanyahu stated that the nighttime operation, dubbed “Rising Lion,” was intended to “mitigate the Iranian threat to Israel’s very existence,” and cautioned that the campaign could extend over “many days.”