Oil prices experienced a volatile trading session, initially surging over concerns about the escalating conflict between Israel and Iran, only to pare those gains as Iranian media downplayed the impacts of recent Israeli strikes. Brent crude (CCOM:OILBRENT) steadied around $87 a barrel after an earlier jump of more than 4% to above $90, driven by fears of a potential wider conflict that could disrupt global oil supplies.

According to reports from two US officials, Israel launched strikes on Iran, a move that came after Tehran’s unprecedented missile and drone attack last weekend. However, Iran’s semi-official Tasnim news agency denied these reports, asserting that the Isfahan nuclear facility remains secure. Additionally, an Iranian military official told the semi-official Mehr news agency that Tehran does not feel compelled to respond to the blasts, indicating a potential de-escalation in immediate tensions.

Traders had been bracing for a response from Israel, with concerns mounting as Tehran issued warnings against targeting its nuclear sites. The Middle East, accounting for about a third of the world’s crude supply, remains a critical region for global oil markets.

“The markets are in for a morning of reactionary headline watching,” commented John Evans, an analyst at brokerage PVM. This sentiment reflects the high stakes involved and the sensitivity of oil prices to geopolitical developments.

The oil market has seen significant gains this year, propelled by escalating hostilities in the Middle East and OPEC+ supply cuts, which have tightened global supplies. These higher energy prices, if sustained, could pose risks to the global economy and present challenges for central bankers who are already grappling with inflation control measures.

OPEC+’s supply curbs, including significant cutbacks from Saudi Arabia and Russia, have provided the group with a buffer of unused capacity amounting to several million barrels per day. These restrictions are currently set to continue through the first half of this year.

Analysts at RBC Capital Markets LLC, including Helima Croft, had earlier highlighted the risks of escalation in their note prior to the spike in oil prices. “We continue to highlight the heightened risk that this war will move up the escalation ladder,” the analysts stated. “Oil supplies could be caught in the cross-hairs of this metastasizing conflict.”

As the situation continues to unfold, the global oil market remains on high alert, closely monitoring developments that could potentially impact supply and pricing dynamics.