(Bloomberg) — Oil steadied — following its biggest one-day jump in almost a year — as fears that Israel may decide to strike Iranian crude facilities in retaliation for a missile barrage kept the market on edge.

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Brent traded below $78 a barrel after surging by 5% on Thursday as President Joe Biden said the US was discussing whether to support potential Israeli attacks on Iranian energy infrastructure. A US official said later the administration was still in talks with Israel and believed no decision had been taken yet. West Texas Intermediate was near $74.

Crude has soared by about 8% this week, the most since early last year, as the escalation of hostilities raised the possibility Middle East oil supplies could be disrupted. Israel and Iran, as well as Tehran’s proxies in Lebanon, Gaza and Yemen have been facing off for the past year, stoking fears of an all-out conflict that could drag in other countries.

There are “fears that Israel will target Iran’s oil production capabilities, so as to hit Iran where it hurts – its pocket,” said Vishnu Varathan, the Asia head of economics and strategy at Mizuho Bank Ltd. in Singapore. While prices have surged, oil likely hasn’t fully priced an all-out war, he said.

Iran fired a barrage of missiles into Israel earlier this week, after Israel stepped up its offensive against Tehran-backed Hezbollah, including sending troops into southern Lebanon. The Group of Seven nations has called on countries in the region “to act responsibly and with restraint”.

The Middle East accounts for about a third of the world’s crude supply. Iran has been pumping about 3.3 million barrels of crude a day in recent months, making it the third-largest producer in the Organization of the Petroleum Exporting Countries.

Citigroup Inc. has estimated that a major strike by Israel on Iran’s export capacity could take 1.5 million barrels of daily supply off the market. If Israel struck minor infrastructure, 300,000 to 450,000 barrels could be lost.

There’s also concern that Tehran could raise the stakes by targeting energy infrastructure in neighboring states, or supply routes including the critical Strait of Hormuz. Clearview Energy Partners said a disruption to flows through the narrow waterway at the mouth of the Persian Gulf could drive crude $13 to $28 a barrel higher.

A major jump in oil prices, if sustained, could contribute to a resurgence in inflation just as many central banks, including the Federal Reserve, have started to ease interest rates after the pace of price gains ebbed.

Options markets are flashing warning signs, as investors bet that oil could rise further. Brent call options, which profit from when prices rise, were at the widest premium to the opposite puts in a year, as of Thursday’s close. Implied volatility has also spiked.

Beyond the crisis, the OPEC+ alliance has reaffirmed a plan to start restoring some shuttered capacity from December, while Libya has been restarting output after a political standoff in the country eased. There are indications in the physical market that the backdrop remains weak, and it’s not clear if a major Chinese stimulus package will have much impact on consumption in the world’s biggest importer.

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