Israel’s military operation against Iran’s nuclear proliferation is called ”Operation Rising Lion” but they can also call it “Operation Rising Oil Prices” as it no doubt has impacted the price of energy. Despite wild predictions of what may have happened in this type of event, price increases have been relatively modest. However, this operation is raising costs, and we can see it in real time.
After the big surge higher on the opening, pulled back as it became clear that the attack had done little damage to Iran’s oil production capability or its ability to export oil. Both sides have a vested interest in keeping the oil flowing at least in the short term unless Israel decides that they will have to take out that infrastructure to finally subdue the Iranians regime.
Just when it seemed we were going to get an uneasy calm, oil prices ran back up after President Trump on Truth Social said that, “Iran should have signed the ‘deal’ I told them to sign. What a shame, and waste of human life. Simply stated, IRAN CAN NOT HAVE A NUCLEAR WEAPON. I said it over and over again! Everyone should immediately evacuate Tehran!” This statement followed Israel’s evacuation warning for parts of Tehran and came amid escalating Israel-Iran airstrikes.
This echoed concerns by an Israeli ambassador to Washington that said, “expect a surprise this week regarding the attack on Iran.”
President Trump also left the G7 meeting early as concerns about the situation in the Middle East sent him back to Washington. President Trump told reporters on Air Force One that his warning was for safety, saying, “I want people to be safe… It’s always possible something could happen.”
That possibility is raising the price of oil and the tanker rates and is an example of how risk premium in oil is priced in real time. Tanker rates for vessels carrying refined oil from the Middle East have surged due to Israel-Iran tensions, making the Strait of Hormuz riskier. Shipping costs to East Asia rose nearly 20% in three sessions through Monday, while rates to East Africa increased by over 40%. Bloomberg News reported that
Tanker rates may increase further following reports of two tankers on fire in the Gulf of Oman. Initially, there were fears that the incident was caused by an attack from Iran or Houthi rebels as part of a strategy to drive up oil prices. However, it may simply have been a collision.
The tankers reportedly involved are the Antigua Barbuda-flagged ADALYNN and the Liberian-flagged FRONT EAGLE. One source mentioned a possible third vessel but did not name it. Initial reports speculated that the fires resulted from direct strikes, potentially linked to the ongoing Israel-Iran conflict, with some suggesting Iranian or Houthi involvement. However, later updates from the UAE National Guard confirmed that the fires were due to a collision between the two tankers.
While increases have been on gasoline prices and oil during this conflict, the diesel and diesel crack spread continues to lead the price increase outpacing oil and gasoline following Israel’s Operation Rising Lion. The reason is Israeli strikes on the Sharon oil depot in Tehran which is a major hub for diesel and other fuel distributions. This could raise concerns about potential supply disruptions for diesel as Iran is a significant producer of medium heavy sour crude grades which are ideal for refining distillate fuels like diesel.
There is also concern that the attacks on Iran’s refineries could also make and diesel production tight, on the market that had some tighter than other products for a long time.
The market is monitoring future developments as President Trump stated that Iran knows how to reach out if they wish to negotiate. He clarified that he has not initiated peace talks with Iran. Iran’s Revolutionary Guards reported that they targeted Israel’s military intelligence directorate in the Mossad operational center early on Tuesday. President Trump expressed his expectation for Iran to completely surrender, while reports indicate that Israel is conducting attacks in western Iran.
The EU has not been able to get themselves off of Russian but apparently there’s a plan in place that that could happen in the future. As reported by the Financial Times and Reuters and Oil price, the European union is making a plan to cut all Russian natural gas exports by the year 2027.
Hungary and Slovakia, which continue to receive Russian gas via a pipeline through the Balkans, have committed to vetoing an outright ban as part of the sanctions package. Implementing sanctions necessitates unanimous consent from all EU member states; however, utilizing trade law would only require approval from the majority. Nevertheless, the EU will grant exemptions to Hungary and Slovakia, allowing them to phase out current Russian gas contracts by 2027, according to officials familiar with the Commission’s plan reported by FT.
The gradual elimination of Russian energy imports aligns with the EU’s strategy to end dependency on Russian energy, unveiled last month. This strategy mandates that the EU ceases all imports of Russian gas by the end of 2027, enhancing transparency, monitoring, and traceability across EU markets.
New agreements with suppliers of Russian gas will be prohibited, and spot contracts—those for immediate payment—will be terminated by the end of 2025, the European Commission stated last month. In its efforts to terminate the importation of Russian natural gas, the EU will mandate that EU companies disclose details of their contractual agreements with Russian gas providers, according to an internal European Commission document reviewed by Reuters last week.
The EU will require EU companies to reveal various specifics of their deals, including contract duration, annual contract volumes, contract conclusion dates, and destination clauses, as per the internal documents examined by Reuters. That should increase the demand for US natural gas and natural gas prices are already rising because of concerns about the Operation Rising Lion.
Natural gas looks like it’s breaking out as we’re turning warmer and Fox Weather forecast for widespread heat across the lower 48 in late June.
That has increased expectation for natural gas demand as people try to stay cool.
The market is monitoring LNG exports closely as maintenance at Sabine and Cameron LNG has decreased feed gas demand, with Sabine receiving 3.0 Bcf/d versus 4.5 Bcf/d in May. However, record deliveries to Plaquemines and Freeport LNG terminals and expected restarts at Cameron LNG are likely to tighten supply and support prices.
And the weather will continue to be key. Fox Weather is reporting that Tropical Storm Erick formed in the Eastern Pacific Ocean early Tuesday morning some 450 miles southeast of Punta Maldonado, Mexico, according to the National Hurricane Center (NHC). Erick is the fifth named storm of this year’s Eastern Pacific hurricane season and could be the first named storm in either the Atlantic or Eastern Pacific basins to make landfall. A tropical storm is a tropical cyclone that has maximum sustained winds of 39-73 mph. The NHC has recorded maximum sustained winds of 40 mph within Erick. Erick has a high likelihood of becoming a hurricane on Wednesday.