Israel could retaliate against Iran's massive missile attack on Tel Aviv and other cities on October 1 by targeting the Islamic Republic's oil facilities amid a dramatic escalation of tensions in the Middle East, according to sources.

Israeli officials are mulling a “significant retaliation” in response to Iran's recent attack, which involved around 200 ballistic missiles. Tel Aviv is now weighing its options on a hit against Iran’s infrastructure, which wouldn’t cause an all-out hot war with Tehran.

The Islamic Republic is well aware of a potential strike and has already warned its western Arab neighbours not to allow Israeli jets through their territories, as it would be seen as “an act of war,” according to the Ministry of Foreign Affairs, on October 3.

Oil prices jumped in global markets immediately after Iran's attack, with Brent trading at just under $75 a barrel days later on October 3, still higher after weeks of declining a trend. Still, if Israel were to strike Iran, some oil industry analysts suggest a $10 spike in the price of Brent.

Oil analysts and security experts have suggested that Israel could target Iran's oil refining sites and the Kharg Island oil port, which handles around 90% of the country's crude exports. Israeli media has been clear that Kharg island, which sits in the Gulf, is a prime target.

Israeli Prime Minister Benjamin Netanyahu described Iran's attack as a “big mistake” and warned that the country would pay for it. Iran, on the other hand, has vowed to hit back with an even more devastating counterattack if Israel launches a strike.

US Senator Lindsey Graham has come out in support of targeting Iran's oil production, urging the Biden administration to “coordinate an overwhelming response with Israel, starting with Iran's ability to refine oil.”

Graham said in a statement that Iran's oil refineries should be “hit and hit hard.”

Iran, the third-largest oil producer in OPEC, pumps around 3.2mn barrels per day (bpd), and the loss of its oil, which accounts for 3% of global supply, could have consequences.

Iran has been exporting an average of 1.7mn bpd in recent months despite US sanctions, with the majority going to China. Experts believe that knocking out such a volume could lead to a sudden 5% rise in oil prices. An attack on such a scale, which could put tens of millions of barrels of oil at risk, could drive prices up by as much as $10.

Newsbase MENA, speaking with a Tehran oil analyst, who asked to remain anonymous, said the “Zionists” would be “foolish” to attack Iranian oil installations.

“Israel would be stupid to cause a spike in oil prices by knocking out one of Iran's facilities; not only would they annoy other Gulf producers but also the US and China,” he said.

“Besides, Iran's economy base is more varied than many take it granted, so they expect that to cripple us if they take out Kharg?” he added.

OPEC, the oil-producing cartel, can easily offset the loss of Iranian oil through its spare capacity, with members such as Saudi Arabia and the United Arab Emirates already preparing themselves for a potential spike in prices.

The oil cartel and its non-OPEC allies led by Russia, known as OPEC+, have recently implemented production cuts for its members to support prices during periods of weak demand. As such, it can quickly unleash millions of barrels of suppressed oil onto the market.

Current production cuts by OPEC+ amount to 5.86mn bpd, with Saudi Arabia likely able to match Iran's output if it was to go offline for an extended period of time.