Oil prices jumped by 4 per cent on Monday on concerns that the situation in Israel and Gaza could disrupt output from the Middle East.
The West Texas Intermediate (WTI), the benchmark for US oil, rose to more than $86 a barrel, while the price of Brent crude also surged in early Asian trading, the BBC reported.
The Israel and Palestinian territories are not oil producers, but the Middle Eastern region accounts for almost a third of global supply.
A wave of attacks launched by the Hamas militant group on October was the biggest escalation between the two sides for decade
Western nations condemned the attacks but a spokesperson for Hamas told the BBC that the group had direct backing for the attack from Iran.
Iran denied involvement in the attack at at UN Security Council meeting in New York on Sunday. But Iranian President Ebrahim Raisi has expressed support for the attack.
“The risk premium on oil is rising due to the prospect of a wider conflagration that could spread to nearby major oil producing nations such as Iran and Saudi Arabia,” energy analyst Saul Kavonic told the BBC.
“If the conflict envelops Iran, which has been accused of supporting the Hamas attacks, up to 3 per cent of global oil supply is at risk,” he added.
Around a fifth of global supply would be “held hostage”, Kavonic said, if passage through the Strait of Hormuz, a vital oil trading route is disrupted.
The Strait of Hormuz is crucial for the main oil exporters in the Gulf region, whose economies are built around oil and gas production, the BBC reported.
Uncertainty over how events could develop in the coming days may also drive investments into US Treasury bonds and the dollar – which investors traditionally bought at times of crisis, said James Cheo from HSBC bank.
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