The winds of war are blowing stronger across the Middle East, as the conflict becomes increasingly direct and explicit between Iran and Israel. As is often the case when tensions escalate in the region, oil prices are rising. On October 4, 2024, Brent crude surpassed $77 per barrel, and the situation could worsen if the conflict intensifies. There is potential for Israel to strike Iranian oil facilities, while Iran, in response, could disrupt tanker transit through the Strait of Hormuz, a vital passage through which around 21% of the world's oil supply flows.
Despite sanctions, Iran's oil production is on the rise, reaching 3.4 million barrels per day, thanks largely to Chinese imports. This Iranian oil supply has helped temper global prices. However, if Israel targets Iranian oil infrastructure, Tehran's clients, primarily China, may turn to other markets, thereby driving prices upward. This risk was underscored on October 3 when, following President Biden's statement that the United States was deliberating support for such an Israeli attack, crude prices surged by 5%.
Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, has even suggested that oil prices could reach $200 per barrel if Iran's oil infrastructure is attacked. He described the recent price increases as "very modest" given the "potentially catastrophic scenarios" developing in the Middle East. Schieldrop highlighted that an attack on Iranian oil facilities could cut Iranian exports by two million barrels per day and noted the potential consequences for the Strait of Hormuz. He described the situation as "potentially catastrophic."
