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Explaining the Israel and Iran Missile Exchange

Oil markets have largely discounted the Iranian missile and drone barrage directed at Israel because it was essentially a ruse designed not to inflict any damage, but to save face at home and abroad. Almost all of the missiles were intercepted by Israeli defense systems, yet Tehran was able to boast of its first direct attack on Israel. 

What should be more worrisome for oil markets is Israel's response to Iran's response (to Israel's response), which came around midnight on Thursday, when first reports of an explosion inside Iran broke. The explosion took place in Iran's Isfahan province, which houses its nuclear facilities, as well as a key Iranian military air base. Reports from the ground suggest no nuclear facilities have been damaged, and Iranian state TV is claiming zero damage. Military sources have told various media that the Israel strike was limited and that the U.S. had been informed in advance. After nose-diving this week, initial news of the explosions sent oil prices up nearly 3% late on Thursday. 

Oil prices then fell back again as an Iranian source claimed there had been no attack - suggesting Iran was keen to downplay the event.

This is a cat-and-mouse game. 

Iran's "direct attack" on Israel was purposefully a failure, designed to complement Israel's defense systems. Any other outcome would have been disastrous for Iran. 

What Tehran is now most concerned about is an Israeli strike on its nuclear facilities, and what the domestic…

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Editorial Dept