President Joe Biden has just confirmed that Washington is holding discussions with Israel about options that include the possibility of strikes on Iran’s oil infrastructure. This comes after Israeli Prime Minister Benjamin Netanyahu vowed there that Iran would “pay a heavy price” for its actions.
Skittish oil markets, based on these developments, jumped into action without much ado. Crude oil prices leaped 5% in one single day, with Brent crude leaping past $77-plus per barrel, up a full 10% since the attacks. Such a spike underlines how fragile the global energy market still really is, particularly when key oil producers like Iran-which is the world’s seventh-biggest exporter of oil-are concerned.
Any perceived targeting of Iran’s oil export facilities by Israel, for example, would go a long way in hurting the Iranian economy, which relies on oil exports to nations like China. Disruption in the production or refining of oil on Kharg Island would likely stress the country’s already meager domestic supplies of fuel and push the world oil markets into shock. Initial reports of petrol queues in Iran suggest that the escalation in tensions between Tehran and the Western world is already beginning to hurt its population.
While Saudi Arabia and the UAE could theoretically replace lost oil production, there is no guarantee that they would intervene. More ominously, though, is the possibility of Iranian retaliation: If Iran attempts to shut the Strait of Hormuz-a narrow passageway through which 20 percent of the world’s oil passes-the global energy supply would not be able to survive the hit. This would not only affect oil exports from the Gulf region but also the transiting quantity of LNG, which is sourced from Qatar for several countries.
This new wave of geopolitical uncertainty could once again rocket energy prices for households and economies that are just recovering from the recent energy crisis spurred by the invasion of Ukraine by Russia. Nothing is predictable, but heightened risks already reverberate across energy markets, while any major act or retaliation will have deep and profound implications for global energy supplies, prices, and economies.
The situation is still fluid, with the entire world watching the Middle East for the next move on how Israel and Iran will navigate this precarious moment.
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