Oil markets currently closed for the weekend are set to see price swings next week because the impact from the U.S. and Israeli strikes against Iran on oil supplies from the Middle East stays unclear.
Scenarios before the most recent conflict with Iran foresaw a fast price spike that fades if the attacks didn’t affect oil shipping and infrastructure corresponding to Iranian pipelines and its Kharg island terminal. Nevertheless, there could be an even bigger price spike and longer-lasting impact if oil infrastructure or supplies were interrupted, for example due to disruption of tanker traffic through the Strait of Hormuz.
Oil prices have already risen on war fears. International benchmark Brent crude closed at a seven-month high of US$72.87 on Friday.
Iran exports some 1.6 million barrels of oil a day, most of it going to China, where privately owned refineries are less concerned concerning the U.S. sanctions that prevent Iran from selling its oil elsewhere. If that offer is disrupted, Chinese customers would look elsewhere for oil on the worldwide market, potentially driving up prices.
One other query is across the Strait of Hormuz, through which 20 per cent of worldwide oil supply go through every day. Middle East exporters Saudi Arabia, Iraq and the United Arab Emirates send most of their exports through the strait. Nevertheless, analysts say Iran has no incentive to attempt to close the strait because it could cut off its own exports and hurt its only big customer, China.
Limited strikes on Iran’s nuclear program and the Revolutionary Guard that avoid regime change or all-out war could see prices jump US$5-US$10 based on fear alone, based on Rystad Energy in a prewar scenario.
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A wider war involving Iranian disruption of tanker traffic could see crude push past US$90 per barrel and US gas prices “well above” US$3 per gallon, based on one other prewar scenario from Clayton Seigle on the Center for Strategic & International Studies. U.S. gas prices averaged US$2.98 per gallon last week, based on U.S. motoring club AAA.
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