Oil prices jumped by 4% on October 1, following an unprecedented missile attack by Iran as it was preparing to launch a missile attack on Israel.

Brent crude futures had increased by $2.50, or 3.5%, reaching $74.20 a barrel by 15:50 GMT, Reuters reports, while US West Texas Intermediate (WTI) crude rose $2.54, or 3.7%, to $70.71.

This tit-for-tat escalation, following weeks of intense Israeli airstrikes on Lebanon, has raised concerns about a wider Middle Eastern conflict potentially involving both Iran and the US, which now appears to have started. 

The Israeli attack on Iranian oil production or export facilities could lead to significant disruption, potentially reducing output by more than one million barrels per day.

Following the sanctions on Russia, the US has been turning a blind eye to increasing Iranian oil exports which have risen to a record level this year. 

As of March 2024, the country was exporting approximately 1.82mn barrels per day (mb/d), the highest level since 2018. Throughout the first quarter of 2024, Iran exported around 1.5 mb/d, a rise attributed to the release of oil from floating storage. By May, exports had further climbed to 1.7 mb/d, marking a five-year high​.

Most of these exports have been directed toward China, with an estimated 80-90% of Iranian oil going to Chinese refineries​. 

This resurgence in exports has been driven by higher demand and Iran’s use of a "ghost fleet" to circumvent US sanctions​. 

Overall, Iran has generated around $12bn in oil revenue during the first quarter of its fiscal year, an increase of 34.8% y/y, despite having to offer discounts to compensate for the risks associated with sanctions​.

Before the reports of a potential missile strike, oil prices had been trading near a two-week low, dipping below $70 a barrel, driven by the outlook for increased supply and weak global demand growth.

A panel of ministers from the OPEC+ producer group is scheduled to meet on October 2 to review the market, with no changes to current policy anticipated, Reuters reports. 

From December, the OPEC+ group, which includes the Organisation of the Petroleum Exporting Countries and allies such as Russia, is expected to increase output by 180,000 barrels per day each month.

Tensions escalated in recent days after a limited Israel's invasion of southern Lebanon by elite units targeting Hezbollah, which is backed by Iran.

The supporters of Hezbollah were celebrating on the streets of Iran, bne IntelliNews’ Tehran bureau reports in the second ever attack by Iran on Israel since the 1979 revolution.

Residents in Tel Aviv were told by authorities to take shelter in bunkers as the attack continues. The Revolutionary Guard Corps (IRGC) released a statement taking responsibility for the attacks, saying it had fired some 250 missiles at the whole country. 

Iran reports claim that the escalating attacks by Israel on Hamas and Hezbollah have been aimed at provoking Iran to strike back directly. Some Israeli and Arab journalists commenting on the missile attack forced Iran’s hand so that Israel intends to strike Iranian territory and specifically target Iran’s six declared nuclear facilities which have been approaching the ability to make weapons grade material. 

Experts says that Iran has only fired a fraction of its missile arsenal and the IRGC said that the missile attack was only a beginning and more attacks could follow. 

Iran has made it clear that it doesn’t not want to get into a regional war and it remains an open question as to if the attack will expand into a general war.  Inital reports say eight Israelis have been killed so far, but an Israeli spokesman said the missiles that landed so far have caused minium damange and no deaths.