As tensions rise in the Middle East, particularly following Israel’s recent responses to Iranian military activity, the global oil market is feeling the repercussions. In a recent press conference, President Biden mentioned that discussions with Israel regarding potential airstrikes on Iranian oil facilities are underway. This announcement triggered an immediate 5% spike in international oil prices.
Goldman Sachs has projected that should Israel’s counteractions significantly disrupt Iranian oil production, prices could skyrocket by as much as $20 per barrel. Following a major missile attack on Israel by Iran, there are increasing fears of possible Israeli strikes on Iran’s oil sector as retaliation. When reporters inquired about his stance on such military actions, President Biden confirmed, “We are discussing that matter.”
On October 4, oil prices continued their upward trend, with West Texas Intermediate crude for November delivery rising 0.4% to $74 per barrel, while Brent crude for December delivery increased 0.5% to $78.19 per barrel. Satellite imagery has indicated that several oil tankers belonging to the National Iranian Oil Company have departed from the waters near the critical Kharg Island oil terminal, a key node for Iran’s oil exports.
Jeff Currie, co-head of global commodities research at Goldman Sachs, remarked, “If Iran’s production keeps declining by one million barrels per day, we could see oil prices peak at about $20 higher next year.” However, this scenario assumes that OPEC and its allies won’t ramp up production to offset the losses. If major OPEC+ players like Saudi Arabia and the UAE intervene to compensate for the production shortfall, the price increase could be more modest, around $10 per barrel.
Analysts are cautioning that the supply chain is under considerable threat. Should Iran’s oil infrastructure be targeted by Israeli operations, around 4% of the global oil supply could be at stake. Kavounis, a senior energy analyst at MST Marquee, highlighted that Kharg Island, which facilitates 90% of Iran’s oil exports, could indeed become a focal point. The prospect of a broader conflict raises significant concerns about the safety of navigation through the Strait of Hormuz.
A report from BMI, a research arm of Fitch Solutions, warned that if a full-scale war erupts, Brent crude prices could soar to $100 per barrel. If the Strait of Hormuz were to be blocked, prices might even climb to $150 per barrel or more.
