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Oil ETFs spiked 3% Wednesday morning before paring gains following Iran's largest-ever direct missile strike, involving over 180 ballistic missiles.

The largest exchange-traded fund to track WTI crude prices, the United States Oil Fund (USO) , was down slightly in afternoon trading after rising 3% earlier in the day, following a 3% gain Tuesday on the rising Middle East tensions.

The conflict further escalated as Israel deployed more troops into Lebanon to confront Hezbollah, an Iran-backed militant group, with no signs of easing tensions despite international calls for de-escalation.

The morning’s spike in oil eased on news that Iran stated its missile strikes would cease unless further provoked.

Oil ETFs and Rising Middle East Tensions

The price of oil and oil ETFs typically rises during wars and conflicts in the Middle East due to the region's critical role in global oil production and supply.

Here are some key reasons for this reaction:

As a result of these factors, oil ETFs, such as USO and the iShares U.S. Oil & Gas Exploration & Production ETF (IEO) , which track oil’s price, tend to receive increased demand and price appreciation during conflicts in oil-producing regions.