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Oil is up roughly 8% since the outbreak of the Israel-Iran conflict, with Wall Street warning of further upside risk if Iran — a major oil producer — is destabilized.
On Wednesday, West Texas Intermediate futures (CL=F) pared early gains to trade near $74 during a volatile session following the release of government data showing weekly oil stockpiles saw their biggest decline in almost a year. Brent crude (BZ=F), the international benchmark, hovered near $75 per barrel.
Oil prices have been in a seesaw pattern over the past several sessions as traders grapple with the impact of the war in the Middle East and the possibility of direct US involvement.
A series of posts from President Trump on Tuesday suggested he is considering joining the conflict to target Iran's nuclear program and leadership.
"The question really becomes how much wider does this [conflict] get, and the wild card is the United States right now," Daniel Dicker, founder of the Energy Word, a newsletter about oil and gas markets, told Yahoo Finance.
JPMorgan analysts note that while oil shocks from geopolitical conflicts are often short-lived, more enduring price risks could stem from regime changes in oil-producing nations, which can lead to major shifts in policy and production.
"Since 1979, eight notable regime changes have occurred in oil-producing nations, with prices spiking by 76% from onset to peak and averaging a 30% increase, leaving lasting effects," JPMorgan's Natasha Kaneva and her team wrote in a Wednesday note.
"If history serves as a guide, further destabilization of Iran could lead to significantly higher oil prices sustained over extended periods," she added.
Read more: How to protect your money during turmoil, stock market volatility
Iran, the fourth-largest producer in the OPEC+ alliance, has not seen any visible supply impacts from the fighting so far. OPEC had increased production quotas in the months leading up to Israel's strike.
Analysts say if the conflict remains contained and no major oil infrastructure is hit, the recent price spike could ease. However, if Iran were to close the Strait of Hormuz — a key chokepoint for global oil flows — Wall Street expects oil could surge into triple-digit territory. That outcome remains unlikely, JPMorgan analysts said, "primarily because it would be considered an act of war," given that the US maintains a strong naval presence in the region.
Meanwhile, tanker rates in the Middle East have surged as much as 50% since the start of the conflict, according to TORM, one of the world's largest product tanker operators.
