Oil prices are rising as markets fear an escalation in the Middle East conflict and reports suggest Israel is preparing for an attack by Iran

The flags of Iran (left) and Israel (right).Manuel August Brown/Getty Images

• Oil prices rose on Friday on reports that Israel was preparing for an attack by Iran as early as this weekend.

• Israeli Prime Minister Benjamin Netanyahu promised direct retaliation for any aggression.

• An attack would mean an extreme escalation of the six-month-old conflict in the Middle East.

Oil prices rose on Friday on reports that Israel is preparing for an attack by Iran as early as this weekend, an event that would mark the most significant escalation in tensions in the Middle East since the Israel-Hamas conflict last October.

West Texas Intermediate crude rose as much as 2% before giving back some gains. WTI was hovering around $85.88 at 1 p.m. ET. Brent rose above $90 a barrel to reach $91.98.

The sudden rise in crude oil prices came after reports that Israel was already preparing for a possible direct attack by Iran on southern or northern territory as early as Friday or Saturday, although sources close to the Iranian leadership told the Wall Street Journal that none had happened yet final decision has yet to be made.

Oil prices have risen in recent weeks as U.S. economic activity remains high and conflict simmers in the Middle East, with some commentators expecting a rapid rise to $100 a barrel if the war spreads to the larger region.

“If there is a standoff between Israel and Iran, $100 or more is likely,” market veteran Ed Yardeni commented on Friday.

Iran's possible method of attack on Israel is uncertain, although Israeli Prime Minister Benjamin Netanyahu vowed to respond directly to any aggression.

Earlier this week, U.S. intelligence reports suggested an imminent threat of an attack on Israeli assets by Iran or its proxies, which was confirmed by a knowledgeable U.S. official who indicated that the potential attack “may be on Israeli soil” rather than elsewhere could target Israeli interests.

The killing of seven Iranian military personnel in an Israeli airstrike on an Iranian diplomatic compound in Syria this week signaled a significant escalation in hostilities. Iran's Supreme Leader Ayatollah Ali Khamenei has promised retaliation against Israel.

The story goes on

Broader financial markets are concerned about the possibility that the conflict could worsen. Stocks fell on Friday, with the S&P 500 down 1.5% by midday and the Dow Jones Industrial Average plunging nearly 500 points.

“Financial markets are preparing for this catastrophic scenario. The S&P 500 recorded a near vertical increase of 27.6% from 4,117.37 on October 27, 2023 to 5,254.35 on March 29. That could be the case for a while, especially if the pressure comes. “There will be a clash between Israel and Iran,” Yardeni wrote. “At the moment we are sticking to our year-end target of 5400, but under the circumstances we cannot rule out a test of the 200-day moving average.”

The unrest drove up safe-haven prices, gold hit another record high on Friday and U.S. Treasury yields fell.

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