How Iran attack could shake energy markets and prices
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A plume of smoke rises over Tehran after a reported explosion Saturday. Photo: Mahsa/Middle East Images/AFP via Getty Images
The overnight military strikes on Iran will likely push up oil prices by creating new risks to supplies from the region that's home to a large chunk of global output and transit.
Why it matters: Americans are about to feel the impact of the joint military operation by the U.S. and Israel.
State of play: Concrete signs of the market fallout will arrive when trading on Asian exchanges opens Sunday evening.
- But even as the conflict's scope and impact remains unknown, here are some possibilities and flashpoints to watch.
1. The Strait of Hormuz: The narrow waterway next to Iran is a choke point that handles a whopping one-fourth of the world's maritime oil trade and a fifth of liquefied natural gas shipments.
- Iran has previously threatened to close the strait.
- Still, "supply disruption to global markets would be limited even in the event that Iran retaliates against tanker traffic, given the expected US-led efforts to maintain supply through the Strait of Hormuz," Eurasia Group analysts wrote in a note ahead of the expected strikes.
- Some tankers are already avoiding the area, Bloomberg reported Saturday morning.
2. Disruption of Iranian production and shipments: Iran is OPEC's fourth largest oil producer and exports roughly 1.5 million barrels per day, primarily to China.
- Market watchers will pay especially close attention to whether the conflict damages Iran's Kharg Island terminal that's used for nearly all of the country's exports.
3. Iranian retaliation against Middle East producers: The most market-moving scenario would be Iran striking infrastructure — like oilfields and export terminals — in other major Arab oil-producing nations.
- This could temporarily remove a "substantial" amount of the 18 million barrels per day of non-Iranian exports from the Gulf region, oil analyst Clayton Seigle of the Center for Strategic & International Studies wrote in a recent primer on the topic.
- This would cause an especially large price spike, he writes.
The big picture: The strikes come at a time of ample global supplies and comparatively modest oil demand growth.
- Oil prices recently rose to their highest levels since last summer amid expectations of the conflict.
- But overall, supply growth has been outpacing demand — giving the White House more maneuvering room without risking a huge spike in gasoline prices.
What they're saying: "While oil markets continue to closely watch and react to potential tensions in the Middle East, history has shown that the price increases are temporary and quickly revert back to near pre-conflict levels," Joseph Brusuelas, chief economist at RSM US, a finance and consultancy firm, said in a note Saturday.
- Patrick De Haan of the market tracking firm GasBuddy is predicting a 5%–10% increase in oil prices, but cautions that there are obviously huge uncertainties.
- U.S. average gasoline prices are roughly $3 per gallon after inching up recently, and "as of now will likely rise to at least ~$3.10-$3.15/gal in the next couple of weeks," De Haan, the firm's head of petroleum analysis, posted on X.
- Seasonal factors like refineries switching over to production of summer gasoline blends were already slated to push prices up.
Zoom in: S&P Global has a map of Iranian oil infrastructure.
What's next: OPEC+ has a regularly scheduled meeting tomorrow to review output plans.
- The group of OPEC, Russia and allied producers had been expected to announce a joint increase of 137,000 barrels per day.
- But it may consider a larger boost in light of the new conflict, Reuters reports.
