| Key Points: – Brent crude oil prices are rising as markets speculate on a potential Israeli strike against Iran’s oil infrastructure, particularly Kharg Island, which handles 90% of Iran’s crude exports. – A worst-case scenario would involve disruption in the Strait of Hormuz, a critical passage for 20% of the world’s crude oil exports, which could cause a dramatic spike in oil prices. – While OPEC+ has enough spare capacity to offset supply disruptions from an Israeli strike, it may struggle if Iran retaliates, adding further uncertainty to the energy markets. |
Brent crude oil extended its gains today, driven by rising fears that Israel could launch a retaliatory strike on Iran’s oil infrastructure following Tehran’s recent ballistic missile attack. Markets are increasingly concerned that such an attack could disrupt the flow of oil from one of the world’s most critical regions for crude exports.
Concerns Over Key Oil Choke Points
Israel’s retaliation, though not yet clearly defined, has analysts worried about the potential impact on Iran’s oil exports, especially if Israel targets Kharg Island, where 90% of Iran’s crude oil exports pass through. A strike there would have significant consequences on global oil supply, sending prices higher. However, the worst-case scenario would involve a strike on the Strait of Hormuz, through which 20% of the world’s crude oil flows, which would cause a dramatic spike in crude prices.
U.S. President Joe Biden has urged Israel to avoid targeting Iranian oil facilities, following his previous opposition to a strike on Iran’s nuclear sites.
Oil Prices Surge on Market Speculation
Brent crude prices surged last week, marking the steepest increase since early 2023. Activity in the options market has also shown increased demand for hedging against the risk of further gains, reflecting market fears of a supply disruption. Despite these gains, Brent crude is still trading below last year’s price of $88 per barrel, when the current conflict in the Middle East began.
OPEC+ Supply and Market Outlook
As OPEC+ prepares to raise production in December following years of output cuts, analysts believe the group has enough spare capacity to offset any supply disruptions caused by an Israeli attack on Iranian oil facilities. However, concerns linger that OPEC+ could face challenges if Iran retaliates, potentially leading to further volatility in oil markets.
While some analysts see an attack on Iranian oil infrastructure as a less likely response from Israel, the broader geopolitical tensions and risks of wider conflict are adding uncertainty to the energy markets.