Eye On The Globe | How will escalating #MiddleEastTensions impact crude oil and #globalmarkets? Don’t miss Ed Yardeni's expert analysis on the far-reaching effects of this geopolitical conflict!@yardeni @avannedubash @nikunjdalmia https://t.co/3qzUMIRxqG
— ET NOW (@ETNOWlive) October 7, 2024
Oil prices have surged due to escalating tensions between Israel and Iran, sparking fears of potential disruptions to Middle East oil supplies. The situation remains volatile following an Iranian missile attack on Israel, which has led to concerns about a possible escalation into a full-scale war. Reports indicate that some of Iran’s energy infrastructure could be targeted in the ongoing conflict.
Global Market | Commodities: Here's an update on oil and gold 👇 pic.twitter.com/03v2pE0F26
— ET NOW (@ETNOWlive) October 5, 2024
Unlike previous geopolitical flare-ups, such as Hamas’s attack on Israel in October 2023, oil prices have remained relatively stable until now. OPEC currently has around 5 million barrels per day (bpd) of spare capacity, primarily from Saudi Arabia and the United Arab Emirates, which could be used to offset potential supply losses from Iran. However, analysts warn that if Iranian proxies target oil infrastructure in neighboring countries or if Iran restricts oil transit through the Strait of Hormuz, oil prices could spike dramatically.
The Strait of Hormuz is a critical chokepoint in global oil trade, handling approximately 20 million bpd.
“If there’s any major oil price spikes, that will be immediately felt at the pump, and that’s what American voters care about more than anything else in terms of daily pricing,” says our expert @hgloystein.
And a rise in prices would be bad for Harris.https://t.co/teXdTSQWBc
— Eurasia Group (@EurasiaGroup) October 6, 2024
Escalating tensions impact global oil prices
While a complete closure of the Strait is considered unlikely, any disruption could have significant consequences for global oil prices.
To summarise:
1) Israel has raised the possibility of attacking Iranian oil facilities
2) The US is very much against it
3) Although speaking in private, other G7 nations are also against
4) Israel often disregards US/G7 views
5) We have seen a preview of market reaction#OOTT— Javier Blas (@JavierBlas) October 4, 2024
In the event of a large-scale disruption, global oil supply could be impacted by up to 3.5 million bpd, with around 1 million bpd of exports primarily to China. Amrita Sen, co-founder of consultancy Energy Aspects, believes that OPEC+ can compensate for this shortfall given its available spare capacity, although this is not the base case scenario. The market appears to be pricing in the possibility of an Israeli attack on Iranian oil infrastructure, according to consultancy FGE, which could potentially push oil prices above $80 per barrel.
In the absence of significant conflict escalation, prices may stabilize around $70 per barrel. UBS analyst Giovanni Staunovo notes that the effectively available spare capacity might be lower if renewed attacks on energy infrastructure occur in the region. Citi analysts suggest that an attack on Iran’s major oil export facility at Kharg Island, from where 90% of Iranian exports originate, could trigger Iran to disrupt traffic in the Strait of Hormuz, representing a critical tipping point for the global oil market and the broader world economy.
Despite these fears, some analysts remain skeptical about a major escalation, questioning whether the U.S. would allow such drastic actions from Israel during an election year or whether Iran would risk closing the Strait of Hormuz, a move that would cut off its primary source of international income.
