LONDON (Reuters) – Oil rose $2 on Wednesday, partly recouping a $5 drop in the previous session, after Iran said it had test-fired missiles that could reach Israel and U.S. bases in the region.

U.S. light crude for August delivery was $1.71 up at $137.75 a barrel by 5:17 a.m. EDT, off highs of $138.28. London Brent crude was $1.96 up at $138.39.

Oil fell more than $5 on Tuesday on a firmer U.S. dollar and a rally in U.S. shares, which drew cash away from the commodities complex. U.S. crude had slid nearly $10 from last Thursday’s record high of $145.85 a barrel.

Iran’s missile tests at a time of increased tensions over its nuclear program once again highlighted the geopolitical risks in the oil market.

“Of particular concern is the fact these missiles are not simply short to medium range,” said Global Insight analyst Lawrence Poole.

Iran’s state media reported the test-firing of nine long-and medium-range missiles, including one Tehran has previously said could reach Israel and U.S. bases in the region.

Iran, the second-largest oil producer in the Organization of the Petroleum Exporting Countries, says its nuclear program is for power generation, whereas the West fears it is aimed at making bombs.

Amid an escalating war of words with Israel, an aide to Iran’s Supreme Leader was quoted on Tuesday as saying that Iran would hit Tel Aviv, U.S. shipping in the Gulf and American interests around the world if it was attacked.

Oil prices are up 42 percent this year, boosted in part by investors seeking a hedge against inflation and the weakening dollar, or fleeing a downturn in equity markets.

Later on Wednesday, focus is expected to shift to weekly U.S. oil inventory data that is expected to show a 1.8 million-barrel decline in crude stocks, a fall of 200,000 barrels in gasoline supplies and an increase of 1.9 million barrels in distillates.