Oil prices have increased DI over 7% This morning after Israel’s air raids against Iran. The attacks have significantly increased geopolitical uncertainty and impose on the oil market to evaluate a higher risk prize for any interruptions of the supply. Underlines it Warren Patterson, Head of Commodities Strategy by Ingcommenting on the first economic effects of Israel’s attack on Iran.
Israel attacks Iran
Israel began to conduct attacks against Iranian nuclear plants and military objectives. Israeli raids have come while the United States and Iran have been conducting nuclear interviews for weeks. Of course, lately there seem to have been few progress in these discussions, with both very distant parts. However, the interviews were destined to continue this weekend. After the latter developments, it is not clear whether they will continue. It should be remembered that the United States said they were not involved in attacks.
It is a significant escalationdifferent from the attacks that we witnessed last year, which spared Iranian nuclear sites. These attacks will certainly lead to some form of retaliation by Iran against Israel. The escalation will only generate further uncertainty and increase the risk of interruption of regional energy supplies.
Although there are no interruption reports in the oil supply, the market must begin to evaluate a higher risk prize.
How much supply of oil is at risk?
Iran is a significant oil manufacturerwith a daily production of 3.3 million barrels of crude oil e an export of about 1.7 million barrels. In a scenario of further escalation, it is not too difficult to imagine a situation of interruption of supplies from part of Tehran. The impact that Israeli attacks in Iran will have on the oil market will depend on which assets will be affected between downstream, midstream and upstream. An impact on the latter would have a greater weight on the global market, putting up to 1.7 million barrels per day of offer for exports. This would be enough to pass the oil market from a surplus in the second half of this year to a deficit. Furthermore, it would cause some rather aggressive raised prices reviews. This scenario could see the Brent go up to 80 dollars a barrel, even if we believe that the prices will probably establish around 75 dollars per barrel. Much will depend on the response in the offer that we will see on other producers.
The risk of the Hormuz Strait
In a scenario of Continue escalationthere is the risk of transport interruptions through the Strait of Hormuz, between the Gulf of Oman and the Persian Gulf. This would have an impact on oil flows from the Persian Gulf. Almost a third of the world trade in oil by sea passes through the Hormuz Strait. Although a part of the oil flows could be diverted to avoid the passage, about 14 million barrels remain at risk per day of oil supply. A significant interruption of these flows would be sufficient to raise prices to $ 120 per barrel. If the interruptions were persisted towards the end of the year, we could see the Brent reach new historic maximums, exceeding the historical maximum of almost $ 150 per Barile Visa 2008.
Any interruptions of transport through the Strait of Hormuz They would also have a significant impact on the global GNL market. Qatar, which represents about 20% of the global trade in this type of gas, uses this route for its exports. And, unfortunately, there is no alternative route. This would make the global market of the GNL extremely tense, with a consequent significant increase in gas prices in Europe.
How to compensate for any supply deficiencies?
Any significant interruption of the supply PIt would have significantly increasing oil prices. This would probably make governments all over the world draw on their strategic oil reserves. Which should obviously be guided by the United States, which have over 400 million barrels of crude oil in their SPR.
The other solution would be that the OPEC drew to its unused production capacity. OPEC has an unused production capacity of over 5 million barrels per day and, despite being already restoring the supply, an interruption of the Iranian supply could push the organization to accelerate this process.
However, it should be noted that, Although OPEC can provide market protection In case of loss of the Iranian oil supply, the situation becomes more difficult if the tensions expand. Most of the unused production capacity are found in the Persian Gulf. Therefore, in the case of interruptions in oil flows through the Strait of Hormuz, this unused production capacity will be of little help for the global oil market. Given the importance of the strait, any interruption “would lead to a more coordinated response globally To ensure that i Energy flows in This bottleneck do not undergo serious interruptions “.
