If Israel retaliates for Iran’s raid by attacking the country’s oil infrastructure, oil prices could increase by $13 a barrel.
Iran on October 1 launched a large-scale missile attack on Israel to avenge the death of the leaders of Hezbollah and Hamas. Israeli Prime Minister Benjamin Netanyahu later announced that Iran had made a big mistake and would pay the price. Iran also threatened a strong reaction if Israel retaliated.
News page Axios Quoting Israeli officials, one of the country’s response options is to attack Iran’s oil production facilities. Amrita Sen – co-founder of Energy Aspects said that this could cause an oil price shock to the world.
After the raid information, world crude oil prices increased nearly 4%. Each barrel of Brent oil is currently up to 74.7 USD and WTI is up to 71 USD. Research firm ClearView Energy Partners estimates that an attack on Iran’s infrastructure could increase oil prices by $13 a barrel. The price could even be more expensive by 28 USD per barrel if the Strait of Hormuz is blocked.
“In theory, if Iran loses all of its output, OPEC+ has enough spare capacity to offset this shock. However, we think this is not the scenario with the highest probability,” Sen said.
The Strait of Hormuz lies between Iran and Oman. About one-fifth of the world’s crude oil and petrochemical products pass through the strait, making the area one of the world’s most important maritime arteries.
Outside an Iranian oil production facility. Image: Reuters
Oil prices have not fluctuated greatly in the past few years, despite tensions in Ukraine and the Middle East. Rhett Bennett – CEO of Black Mountain said part of the reason is that the US increased oil production. The US currently contributes 13% of global crude oil production. This ratio of OPEC is 25% and OPEC+ 40%.
However, if tensions in the Middle East spread further, causing more serious supply disruptions, it will be difficult to avoid an increase in oil prices. This will drive up gas prices, affecting the election campaign of US Vice President Kamala Harris.
“The US will likely persuade Israel to respond more gently, to avoid tensions rising too high,” Warren Patterson at ING expects.
Iran is currently the third largest oil producer in OPEC (Organization of Petroleum Exporting Countries), with an output of 3.2 million barrels a day, equivalent to 3% of the global output. This year, their exports reached their highest level in many years, with 1.7 million barrels a day, despite US sanctions. The main buyers are Chinese oil refineries.
Conflicts in the Middle East have escalated since the end of last year, but only caused prices to increase in the short term. However, this time may be different, as Iran has become more deeply involved in the conflict.
OPEC+ includes OPEC and allied countries such as Russia and Kazakhstan. Over the past few years, they have reduced production to support oil prices amid weak global demand. Currently, OPEC+ countries cut a total of 5.86 million barrels a day. Therefore, the spare capacity of this alliance is still quite large.
This organization met to discuss output. However, Reuters Quoting close sources, the group does not discuss the Israel-Iran conflict. “The only political issue mentioned is that countries hope the conflict does not escalate,” the source said.
In fact, the countries most able to compensate for supply are the Gulf countries – which will be affected if Middle East tensions escalate. Giovanni Staunovo – analyst at UBS said that the West will have to open strategic reserves, if serious supply disruptions occur.
Analysts and security experts say Israel could target oil refineries and the Kharg Island oil port – which processes 90% of Iran’s dry oil exports. During the Iran-Iraq war in the 80s, Baghdad attacked many oil ships around Kharg Island and threatened to destroy this port. However, Israel has so far avoided attacking Iran’s oil facilities.