Oil Prices Surge on Geopolitical Tensions, But Market Sees Limited Upside

Oil prices surged on Monday after the US and Iran exchanged strikes, but the market's response is expected to be short-lived. The geopolitical risk premium increased temporarily, lifting oil prices due to concerns over further military operations.

The US struck Iran's Larak Island on Sunday, with the IRGC forces preparing to launch rockets with sea mines into the Strait of Hormuz. In retaliation, Iran launched ballistic and anti-ship missiles from multiple provinces, targeting two US bases in Jordan, King Hussein and Al Azraq. According to a US source, most missiles were intercepted with no significant impact.

The market is likely to forget this escalation quickly, as there's no appetite for further military operations. The US is now pursuing an economic warfare strategy to force Iran into a deal, which should limit the downside in oil prices.