
Iran-Israel conflict: which direction will the global oil market?
Last Updated on October 6, 2024 10:08 am
The name of the product that is closely associated with any geopolitical crisis and tension in the Middle East is fuel oil. This issue is returning to the current crisis in the Middle East, which started with Israel, Gaza, Lebanon and Iran. If the Iran-Israeli war really ends, where will the price of fuel oil go? Will the price rise to one hundred dollars per barrel?
First, the barbaric military attack in Gaza, then the assassination of Hamas leader Ismail Haniyeh in Iran, the Middle Eastern Zionist state of Israel killed Hezbollah leader Hassan Nasrallah. However, Iran responded strongly to this Israeli attack on its allies. Tehran launched an unprecedented missile attack on Israeli territory, especially Tel Aviv, the country’s largest city.
Immediately after the attack, the whole world was shocked by the start of the confrontation between Iran and Israel. Analysts believe that even if the price of fuel oil increases slightly in this situation, it is not very significant.
Tuesday (October 1) immediately after the Iranian attack on Israel, the price of oil in the international market increased by 2.4 percent. However, if the war comes, the price of oil will really rise to one hundred dollars per barrel or not, or under what circumstances it can reach one hundred dollars, is the most discussed issue in the energy market.
Iran is an important energy player
Despite Western sanctions, Iran is currently one of the most important partners in the world’s energy market. The country currently produces an average of about 4 million barrels of oil a day, which is 4 percent of the world’s total production. On the other hand, Saudi Arabia’s daily production is 9 million barrels.
Although the Western sanctions have disrupted Iran’s oil production and export capacity, it has not knocked Tehran out of the world market. Rather, Iranian oil has always found new markets for export. China in particular has become the largest destination for Iranian oil. In total, Tehran currently exports 2 million barrels of oil per day.
That is why the Iranian attack on Israel did not affect the oil market
In this situation, Iran’s missile attack on Israel has given many a glimpse of instability in the world oil market. Especially in the light of the history of past conflicts in the Middle East, many people feared that this would happen. But in reality, nothing much happened except for a small jump in oil prices. Analysts say the reason for this is that the structure of the world’s energy supply has changed a lot in the last two to three decades.
At one time the United States and Western countries were almost entirely dependent on Middle Eastern oil, but that dependence has changed in recent years. The situation has changed a lot, especially with the advent of shale oil in the United States. A large amount of this shale fuel has now turned the world’s largest fuel importer into the world’s largest fuel importer. In this situation, Washington’s dependence on Middle East oil has decreased a lot.
As a result, Iran’s missile attack on Israel failed to have much of an impact on the oil market. In this regard, Helima Croft, Global Head of Commodity Strategy at RBC Capital Markets, told CNN that before the US shale energy revolution, the price of oil would have easily risen to $100 in such a situation.
However, it cannot be said that the international situation cannot influence the price of fuel oil, because the price of oil reached 130 dollars overnight after the start of the Russian war in Ukraine a couple of years ago. However, later this war did not have much impact on the world’s energy supply system, so oil prices returned to normal. Now the question is if the Iran-Israel war starts, will it really affect the oil market, and even if it does, how much will it affect, or if the war starts, how many dollars will the price rise per barrel?
Oil prices will depend on Israel’s response
Iran has launched more than two hundred missile attacks on various military installations including Tel Aviv city of Israel. Israel has threatened to give a suitable response. Now the level of Israel’s response may depend on the fluctuation of oil prices. But according to CNN, the US could deter Israel from launching an attack on Iran, which would result in disruption of global energy supplies.
This is indicated by US President Joe Biden’s speech immediately after Iran’s missile attack last Wednesday (October 2). He said that Washington will not support an Israeli attack on the country’s nuclear facilities in response to Iran’s attack.
In this regard, Rapidan Energy Group president Bob McNeely told CNN that if the conflict between Israel and Iran escalates, it will affect the energy infrastructure and oil supply system.
Helima Croft told CNN that if Israel attacks Iran’s energy infrastructure, Iran may decide to spread the conflict throughout the region so that its impact is felt at the international level. In this regard, he cited the overnight rise in oil prices in response to attacks on Saudi Arabia’s energy infrastructure in 2019 as an example.
An attack on Iran’s oil infrastructure will drive up prices
Oil prices could rise from $74 to $86 per barrel overnight if Israel attacks Iran’s energy infrastructure, energy consultancy Clearview Energy Partners told its clients. The company’s managing director, Kevin Book, told CNN in this regard that the energy market is currently dependent on Middle East risks.
Especially if Israel attacks Iran’s energy infrastructure on Kharg Island. This will have a serious impact on Iran’s oil supply system, Clearview said. Because 90 percent of Iran’s oil export facilities are located on this island. As a result, the global market will be deprived of nearly two million barrels of oil per day, the impact of which will certainly be felt in oil prices.
If the Strait of Hormuz is closed, the price of oil will rise to $100
In theory, even if Iran’s oil supply to the world market is cut off, it will eventually be compensated by the United States and its allied Arab oil producing countries. In that case, they will increase their production. In this regard, Saudi Arabia may not be able to reject the request of the United States to increase oil production. Washington could even temporarily supply oil to the world market from its own strategic fuel reserves, as it did after the start of Russia’s military operation in Ukraine.
In this case, the oil market may not be very volatile. But the real danger would be if Iran decides to close the Strait of Hormuz in response to an Israeli attack on its oil infrastructure. In that case, the energy supply system from the entire Persian Gulf region to the global market will collapse, which will affect the whole world. The Strait of Hormuz, only 21 miles wide, is the only outlet from the Persian Gulf to the Indian Ocean, at one end of which lies Iran.
Iran can close the Strait of Hormuz if it wants, it has that military capability. It will completely stop the export of energy to Iraq, Kuwait, United Arab Emirates and Qatar. In this case, the price of oil can really rise above 100 dollars, according to the consulting firm Clearview. And these price hikes are likely to last until the crisis is resolved.
International investment firm Citigroup told its clients last Wednesday that the closure of the Strait of Hormuz would greatly affect the global energy market and economy. In this situation, the global fuel oil market will be in turmoil. As a result, the price of oil could suddenly rise so fast, it would surpass all previous price records.