The price of oil surged late Thursday after the killing of an Iranian military leader in a U.S.-authorized strike, an escalation in tensions between Washington and Tehran that could threaten the world’s crude supplies.

Oil rose sharply on the news in futures-market trading, with Brent crude rallying about 4%, before paring some of its gains after the Pentagon said President Trump authorized the strike that killed Qassem Soleimani, leader of Iran’s Islamic Revolutionary Guard Corps’ foreign wing. Brent recently traded up 3.2%...