Oil-based exchange-traded funds (ETFs) experienced a significant decline, dropping over 4%, following Israel’s recent military strikes on Iran. The strikes, which occurred over the weekend, were reported as “limited” by local media, leading analysts to downplay the potential impact on oil supplies.
What Happened: Israel’s military targeted Iranian sites in three provinces on Saturday in response to a ballistic missile attack by Tehran on October 1. According to the Iranian news agency Tasnim, the strikes resulted in the deaths of four soldiers and caused “limited damages,” sparing oil, nuclear, and civilian infrastructure. Post the strikes, oil prices saw a sharp decline of more than 4% on Monday, CNBC reported on Monday. I
Following the attacks, several oil ETFs recorded notable losses.
During pre-market hours on Monday, ProShares Ultra Bloomberg Crude Oil UCO fell by 8.41%, United States Oil Fund LP USO dropped 4.69%, SPDR S&P Oil & Gas Exploration & Production ETF XOP decreased by 1.81%, and MicroSectorsTM Oil & Gas Exploration & Production 3X Leveraged ETNs OILU saw a 4.54% drop, according to Benzinga Pro.
Despite the tensions, Iran’s oil industry remains unaffected, with operations continuing as usual. Iran is responsible for up to 4% of the global oil supply, as per the U.S. Energy Information Administration. The attack comes after an Iran-backed Hamas assault on Israel on Oct. 7 last year.
Why It Matters: The recent strikes add to the ongoing geopolitical tensions that have kept energy markets on edge. Earlier this month, oil prices had already dipped by 2% after OPEC reduced its global oil demand growth forecast for the third consecutive month. This was due to actual consumption data and slightly lowered demand expectations.
Experts had warned that an Israeli attack on Iranian oil facilities could significantly disrupt global oil prices. John Driscoll, chief strategist at JTD Energy Services, highlighted the potential for such actions to unsettle the market, drawing parallels to past incidents like the 2019 drone attacks on Saudi oil fields.
Although Iran’s oil production is lower due to sanctions, any disruption could still lead to a price increase.
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