Oil market's ho-hum response to Iran strike seen as "remarkable"
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The modest oil-market response in the wake of U.S. attacks against Iranian nuclear sites over the weekend is striking to at least one analyst.
Why it matters: "It's remarkable to have such a limited risk premium in the face of this uncertainty and potential for escalation," oil scholar Ben Cahill of the University of Texas-Austin told Axios via email.
Driving the news: There's geopolitical risk premium built into what's a well-supplied market — you can see the initial jump when Israel struck Iran on June 13.
- But prices are not heading into orbit despite Iran's parliament weekend saber-rattling about closing the Strait of Hormuz.
- Brent prices rose around 5% when trading opened last night but quickly fell back. By mid-afternoon Monday, they had fallen sharply — to under $70 a barrel — after Iran attacked the U.S. military base in Qatar in retaliation.
- Traders don't appear to believe — for now — that the conflict will expand in ways that significantly stymie oil flows in the region.
What they're saying: "The market continues to shrug off more geopolitical risk than I would have thought possible a few years ago," Cahill said.
- "But that's been the story of the oil market since Oct 7, 2023, and arguably since Abqaiq," he said, referring to the 2019 strikes on the vital Saudi crude oil stabilization center.
The intrigue: The aftermath of Iranian proxies' strikes on the site offers a lesson, said Ellen Wald, a senior fellow at the Atlantic Council.
- "[T]raders learned from the Abqaiq attacks that Aramco has incredible reserves of crude oil stored away and the ability to tap into that to ensure the uninterrupted flow of oil."
- With the Saudis currently holding back considerable output, an oil market disruption would be temporary, she adds.
Zoom in: Wald told Axios it would be "incredibly difficult" for Iran to block the strait that handles about a fifth of the global oil trade.
- Ships can be re-routed away from the Iranian portion of the channel that also includes Omani waters, she notes.
- Israel and the U.S. have air superiority, so attempted naval action could be deterred from above.
- "Iran also doesn't want to jeopardize its own oil exports," she said via email.
Catch up quick: Iran's parliament yesterday offered a symbolic endorsement of closing the waterway, but any decision would rest with regime leaders.
Yes, but: Iran retains capacity to interfere with the strait in ways that prompt shippers to avoid it, RBC Capital Markets' Helima Croft said in a note, though extended closure would be very tough given the U.S. Navy's Fifth Fleet in Bahrain.
- "[W]e do not believe it is a 'full closure or nothing' scenario when it comes to the waterway, and Iran may deploy their asymmetric capabilities to raise the economic cost of the combined US/Israeli operations," she writes.
Editor's note: This story is updated with the latest change in Brent crude oil prices.
