Global oil markets brace for fallout as Iran eyes retaliation
All eyes are on Iran as the world braces for potential retaliation against Israel. Wall Street’s anxiety spiked last week, with U.S. benchmark oil prices surging 3.5 percent on Wednesday alone. As The Wall Street Journal reported, the entire region – and the world – is on high alert, anticipating Iran’s next move.
Panic is already setting in. By the end of last week, oil markets began to strengthen, with crude prices climbing in anticipation of an Iranian retaliation against Israel. Such a response could escalate the conflict in the Middle East and severely disrupt oil supplies from the region.
While the risk of escalation remains significant, global powers are working to de-escalate the situation and keep oil prices stable. Diplomatic pressure is mounting on both Iran and Israel to avoid further conflict.
French President Emmanuel Macron spoke with Iranian President Masoud Pezeshkian last Wednesday, expressing deep concern about rising tensions and urging Iran to avoid any further military action.
But will these efforts succeed? The outlook is bleak. Iran has vowed to give a ‘befitting’ response to Israel over the killing of Hamas terrorist leader Ismail Haniyeh on Jul. 31 in Tehran. It seems unlikely that Iranian Supreme Leader Ayatollah Khomeini would back down from this commitment unless something unexpected occurs.
If the conflict in the region escalates, it will have immediate consequences for global crude oil markets. The key questions would then be how much oil prices would spike and how long the increase would last. While it’s impossible to predict the exact impact, one thing is clear: a wider conflict would lead to an immediate spike in oil prices.
Most analysts believe that Haniyeh’s killing has escalated tensions significantly. Although Israel has not officially acknowledged responsibility, many suspect Tel Aviv’s involvement. This could draw Iran directly into the Hamas-Israel conflict, which, if it happens, could disrupt oil supplies from the Middle East – a region that supplies more than 30 percent of the world’s crude oil – and cause oil prices to soar.
If Iran gets directly involved, it could block or disrupt crude supplies through the Straits of Hormuz, which would drive up the cost of Middle Eastern oil and push prices even higher. As Simon Watkins pointed out in his Aug. 5 article for Oilprice.com, “Similar threats in the past have caused big spikes in the oil price.”
To gauge the potential impact on oil prices, Watkins refers to a World Bank report released after the Hamas-Israel conflict began on Oct. 7. The report outlined that a “small disruption” – reducing global oil supply by 500,000 to two million barrels per day (similar to the decrease during the Libyan civil war in 2011) – would cause oil prices to rise by three to 13 percent.
A “medium disruption” – a loss of three million to five million barrels per day (comparable to the 2003 Iraq war) – would drive prices up by 21 to 35 percent. A “large disruption” – a drop of six million to eight million barrels per day (similar to the 1973 Oil Crisis) – would push prices up by 56 to 75 percent.
According to the report, the current Brent oil benchmark price is around US$77 per barrel, which could mean a jump of between US$120 and US$135 per barrel.
The global economy is unprepared to handle such a disruption. To prevent a recession, the world relies on stable oil supplies, which makes it essential to avoid further escalation in the Middle East.
Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, with a particular emphasis on the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.
For interview requests, click here.
The opinions expressed by our columnists and contributors are theirs alone and do not inherently or expressly reflect the views of our publication.
© Troy Media
Troy Media is an editorial content provider to media outlets and its own hosted community news outlets across Canada.
