A general view of the Isfahan Refinery, one of the largest refineries in Iran and considered the first refinery in the country in terms of oil product diversity in Isfahan, Iran on November 08, 2023.
Fatemeh Bahrami | Anadolu | Getty Images
Oil watchers now see a real threat to crude supplies after Iran launched a ballistic missile attack on Israel, escalating the conflict in the Middle East.
Iran launched the strike on Israel on Tuesday in retaliation for the recent assassination of Hezbollah leader Hassan Nasrallah and an Iranian commander in Lebanon.
Iranian oil infrastructure may soon become a target for Israel as it considers a counter move, analysts told CNBC.
“Middle East conflict may ultimately affect oil supply,” said Saul Kavonic, senior energy analyst at MST Marquee. “The scope for a material disruption of the oil supply is now imminent.”
These latest developments could be a game-changer, after a prolonged period of “geopolitical risk fatigue” in which traders shrugged off threats of oil supply disruptions stemming from the situation in the Middle East as well as Ukraine, he said.
Up to 4% of the world’s oil supply is at risk as the conflict now directly covers Iran, and an attack or tougher sanctions could push prices back to $100 a barrel, Kavonic added.
Oil prices year to date
Iran’s latest missile attack followed Israel’s deployment of ground troops in southern Lebanon, stepping up its offensive against Hezbollah, the Iranian-backed militant group. Most of the 200 rockets fired were intercepted by Israeli and US defenses, and no Israeli casualties were reported as a result of the attack.
The attack came after Israel deployed ground forces in southern Lebanon, escalating its attack on Hezbollah, the Iran-backed militant group.
Oil prices gained more than 5% in the previous session after the missiles hit, before settling up 2%. Global benchmark Brent is now trading 1.44% higher at $74.62 a barrel, while US West Texas Intermediate futures rose 1.62% to $70.95 a barrel.
As Israel turns from Gaza to Lebanon and Iran, the war is entering a new, more energy-related phase.
Bob McNally
President of Rapidan Energy Group
Since the start of the Israel-Hamas armed conflict on October 7 last year, disruptions in the oil market have been limited. The oil market also remains under pressure as increased production from the US adds to the supply picture and expanded Chinese demand has depressed prices.
Iran is the third-largest producer among the Organization of the Petroleum Exporting Countries, producing nearly four million barrels of oil per day, according to Energy Information Administration data.
A new phase of the war?
Other analysts echoed Kavonic’s warning.
“As Israel turns from Gaza to Lebanon and Iran, the war is entering a new and more energetic phase,” Bob McNally, president of Rapidan Energy Group, told CNBC, adding that he expects Israeli retaliation for the missile attack. disproportionately large”.
“It’s going to get worse before it gets better,” he said.
Ross Schaap, head of research at GeoQuant, which uses structural and high-frequency data to create political risk scores, said the agency’s risk analysis model for the Israel-Iran conflict, which remained within three standard deviations of the mean compared to the last 12 years, there was a significant increase after the last missile attacks.
These results indicate that “much larger events” are expected, Schaap said.
Josh Young, CIO of Bison Interests, who similarly observes a growing possibility of a potential strike on Iran’s oil infrastructure disrupting oil supply, said this marked a “significant escalation” by Iran.
In the event that Iranian exports are cut off due to an attack, Young predicts that oil prices will soar to more than $100 a barrel.
