Oil Prices Soar as Iran Conflict Threatens Middle East Supply

G7 finance ministers will discuss a coordinated emergency release of strategic petroleum reserves in a call with the International Energy Agency on Monday as oil prices surge following the Iran war, according to people familiar with the talks cited by the Financial Times.

Three G7 countries, including the United States, are already said to support the move, with some U.S. officials considering a release of 300–400 million barrels, potentially drawing on roughly 25–30% of the IEA system’s 1.2 billion barrels in public emergency stocks. The reserves were created after the 1973–74 oil crisis to stabilize markets during major supply disruptions.

IEA member states hold more than 1.24 billion barrels of government-controlled reserves, with an additional ~600 million barrels in industry stocks that could also be mobilized in an emergency.

Strategic stockpiles have been tapped collectively only five times since the IEA’s creation, most recently in 2022 after Russia’s invasion of Ukraine.

India’s rupee slid to a record low on Monday despite intervention from the Reserve Bank of India, highlighting the growing strain that surging oil prices are placing on the country’s economy.

The currency fell 0.6% to ?92.347 per dollar even as the central bank reportedly sold dollars to slow the decline. Analysts say the pressure reflects India’s heavy dependence on imported crude at a time when global prices have surged past $110 per barrel.

India imports nearly 90% of its oil needs, leaving the economy highly exposed to energy price shocks that can widen the current account deficit and strain domestic financial stability.

The surge in crude prices also rattled equity markets, sending shares of major Indian refiners sharply lower at the open. State-owned refiners Indian Oil, Bharat Petroleum, and Hindustan Petroleum each dropped more than 5%.

India relies on the Middle East for more than half of its oil supplies, and ongoing disruptions in the region have heightened concerns about supply security. Although the United States has allowed India to purchase some Russian oil cargoes stranded at sea, analysts say the volumes are too small to meaningfully offset supply risks.

Air defenses intercepted drones near two major Iraqi airports overnight, according to local media and verified footage.

In northern Iraq, Kurdish outlet Rudaw reported that air defense systems at Erbil International Airport tracked and shot down a drone approaching the facility. The airport hosts U.S. forces and is a key military and logistical hub in the Kurdistan autonomous region.

Separately, a video verified by Al Jazeera showed multiple drone interceptions near Baghdad International Airport in the early hours of the morning. Earlier reports said drones were also downed over the capital’s Al I’alam neighborhood, where a woman was wounded during the incident.

The attacks come amid a broader wave of overnight drone activity across Iraq.

Saudi Arabia says it has intercepted and destroyed four drones heading toward the Shaybah oilfield in the Rub al-Khali desert, according to the kingdom’s Ministry of Defence. The incident marks at least the fourth attempted strike on the major Aramco-operated field within a matter of hours, underscoring rising risks to energy infrastructure as regional tensions escalate.

The Shaybah field, located deep in Saudi Arabia’s Empty Quarter, is one of the country’s key crude production sites. Officials said the drones were successfully neutralized before reaching their intended target.

In a separate statement, Saudi Arabia’s Ministry of Foreign Affairs strongly condemned what it described as “heinous” Iranian attacks targeting Saudi territory and other Gulf states. The ministry accused Tehran of deliberately threatening regional stability through strikes on civilian infrastructure, including airports and oil facilities.

Riyadh also rejected Iranian claims that Saudi territory had been used to launch attacks, saying aircraft cited by Tehran were conducting defensive patrols to protect Saudi and Gulf airspace from missile and drone threats.

Saudi officials warned that continued attacks risk further escalation across the region and could have lasting consequences for diplomatic relations. The ministry cautioned that Iran’s actions were fueling a dangerous cycle of confrontation, adding that Tehran would ultimately be “the greatest loser” if the current escalation continues.

• Iran has appointed Mojtaba Khamenei as the country’s new supreme leader, replacing his father, Ayatollah Ali Khamenei, who was killed in the opening wave of U.S. and Israeli strikes.

• Israel has launched a new wave of strikes in Iran and Lebanon, targeting infrastructure linked to the Iranian regime and Hezbollah.

• Iranian missile and drone attacks have expanded across the Gulf, striking Saudi Arabia and Bahrain and raising fears of a wider regional conflict.

• Oil prices surged nearly 30% and are on track for the largest single-day increase in history. Brent and WTI are trading at levels not seen since Russia’s invasion of Ukraine in 2022.

• Oil production is being cut across the Gulf, with Iraq’s output down roughly 60% and Kuwait and the UAE trimming production as tanker traffic through the Strait of Hormuz collapses.

• Saudi Arabia has condemned Iran’s attacks after strikes killed two people near Riyadh and targeted military and energy infrastructure.

• Global markets have fallen sharply, with Asian stocks sliding and U.S. futures pointing to major losses as geopolitical tensions intensify.

Iranian President Masoud Pezeshkian has praised the appointment of Mojtaba Khamenei as the country’s new supreme leader, calling the decision a reflection of national unity in the face of attacks by the United States and Israel.

In a statement on Telegram, Pezeshkian said the choice strengthened the “resilience of the Iranian people” and said the new leader would guide the country through the conflict with “wise leadership” built on the foundation left by his father, Ayatollah Ali Khamenei, who was killed in the opening wave of recent attacks.

Tehran’s move is widely seen as a signal that Iran intends to maintain its hardline stance despite mounting pressure. The Islamic Revolutionary Guard Corps appeared to underline that message, launching its first missiles under the new leadership and posting an image of a projectile captioned, “At Your Service, Sayyid Mojtaba.”

Israeli Defense Minister Israel Katz has warned that any Iranian leader pursuing “Israel’s destruction” would be considered a legitimate target. U.S. Senator Lindsey Graham echoed that sentiment, saying it may only be “a matter of time” before Mojtaba Khamenei meets the same fate as his father.

U.S. President Donald Trump declined to comment directly, telling reporters: “We’ll see what happens.”

Saudi Arabia has strongly condemned Iran’s attacks on the kingdom and other Gulf states, warning that Tehran will ultimately suffer the most if the escalation continues.

In a statement, the Saudi Ministry of Foreign Affairs described the strikes as “heinous,” saying attacks on civilian targets — including airports and oil facilities — represent a direct threat to regional security and stability and a clear violation of international law.

Riyadh also rejected Iranian claims that Saudi Arabia had allowed foreign fighter jets and refueling aircraft to operate from its territory in support of the war. The ministry said the aircraft in question were conducting defensive patrols aimed at protecting Saudi and GCC airspace from incoming Iranian missiles and drones.

The ministry warned that continued Iranian strikes would deepen the conflict and severely damage relations moving forward.

“Iran’s current actions toward our nations do not reflect wisdom or an interest in avoiding the expansion of the cycle of escalation, in which Iran would be the greatest loser,” the statement said.

Oil supply disruptions across the Persian Gulf are deepening as the conflict around Iran continues to disrupt tanker traffic through the Strait of Hormuz. With most commercial vessels avoiding the waterway, major Gulf producers are now being forced to cut output as onshore storage rapidly fills.

Iraq has been hit the hardest so far. Production has fallen by roughly 60%, dropping from about 4.3 million barrels per day before the conflict to around 1.7–1.8 million bpd, according to market estimates. Much of Iraq’s export system relies on southern terminals that load tankers bound for Asia, and with ships unable or unwilling to transit Hormuz, the country has been forced to shut in large volumes of crude.

The situation is beginning to spread across the region. Kuwait and the United Arab Emirates have both started trimming production as storage capacity tightens and fewer empty tankers arrive to load cargoes. Once the remaining vessels currently in the region are filled, producers may be forced to accelerate shut-ins across multiple fields.

Attacks on Saudi Arabia escalated over the weekend, with both residential areas and strategic infrastructure coming under fire.

Saudi authorities said at least two people were killed and 12 were injured after a projectile struck a residential compound in Al-Kharj, southeast of Riyadh.

The Saudi Defense Ministry said air defenses intercepted three ballistic missiles targeting Prince Sultan Air Base in the same region, while multiple drones were shot down around Riyadh and Al-Kharj.

Saudi officials have also reported attempted drone strikes on energy infrastructure, including facilities linked to the Ras Tanura refining complex, underscoring growing risks to the kingdom’s oil sector.

Amid the escalating attacks, the U.S. State Department has ordered the departure of non-emergency personnel and family members from the U.S. Embassy in Riyadh, citing security concerns.

Israel has launched a new wave of strikes against targets in Iran and Lebanon as the conflict continues to escalate.

The Israel Defense Forces (IDF) said it began “an additional wave of strikes” targeting infrastructure linked to the Iranian regime in central Iran. Israeli officials said the strikes are part of ongoing operations aimed at Iranian military and command infrastructure.

In Beirut, the IDF said it also struck infrastructure belonging to the Iran-backed militant group Hezbollah.

Israeli operations have also targeted senior Iranian officials. According to Israeli statements, Abolqasem Babaian, recently appointed head of the military office of Iran’s supreme leader, was killed in a strike on Saturday.

Meanwhile, Iran carried out a drone strike on the Bahraini island of Sitra, injuring at least 32 people, including four in critical condition, according to Bahrain’s state news agency.

Earlier, Israel also said it intercepted missiles launched from Iran.

The latest exchanges mark a continued escalation in hostilities as Israeli strikes and Iranian retaliatory attacks spread across the region.

Oil prices are in the midst of a record-breaking rally, with both Brent and WTI climbing by close to 30% on the back of a major escalation in the Iran conflict. WTI crude has already climbed to $117.50, up 29.27%, while Brent crude has risen to $117.70, up 26.98%.

The rally comes as attacks continue across the Middle East, with Israel striking a major fuel storage facility near Tehran and Iran launches drone and missile attacks across the region. A drone strike damaged a desalination plant in Bahrain, a missile barrage injured five people in central Israel, and a seventh U.S. service member died following an Iranian counterattack in Saudi Arabia.

Meanwhile, Iran’s Assembly of Experts named Ayatollah Mojtaba Khamenei, the son of the slain Supreme Leader Ali Khamenei, as the country’s new supreme leader early on Monday. The appointment signals continuity in Iran’s hardline leadership, undermining the efforts of both the U.S. and Israel to alter the regime.

Fears of prolonged supply disruptions, including potential attacks on regional energy infrastructure and tanker traffic, are now being priced in to markets. Energy traders are closely watching whether the conflict will affect production or exports from major Gulf producers.

Global markets tumbled at the start of the week as investors reacted to a sharp escalation in Middle East tensions and expectations that there will be a prolonged conflict in the region.

Stock markets in Hong Kong and mainland China fell sharply at Monday’s open. Hong Kong’s Hang Seng Index dropped by more than 3% while China’s CSI 300 index declined about 1.9%.

Meanwhile, the S&P 500 futures and Nasdaq-100 futures both tumbled by more than 2%, pointing to further declines when U.S. markets open.

The sell-off reflects growing risk aversion among investors as geopolitical uncertainty intensifies and markets brace for further volatility in oil prices and global supply chains.