Iran-Israel conflict: will oil prices soar after the escalation?

The Iranian strikes against Israeli territory mark a new escalation of the ongoing conflict in the Middle East: the assault on Tehran is this time more violent than the previous remote offensive in April 2024, while Tel Aviv’s troops are now fighting in southern Lebanon.

But if Iranian Foreign Minister Seyed Abbas Araghchi indicated an end to his attacks “unless the Israeli regime decides to cause further reprisals”Benjamin Netanyahu’s promise to “retaliate against [ses] enemies” raises fears of a resumption of offensives. “Iran made a big mistake tonight – and it will pay for it”launched the Prime Minister during a press conference cited by Reuters on September 2, 2024.

Such a threat raises fears of strikes targeting Iranian infrastructure, including those linked to oil, which could tip the price of the raw material, less than three years after a last explosion in the cost of energy following the conflict in Ukraine.

In Iran, in the hottest desert in the world

A rise in black gold prices

As Bloomberg points out, the price of a barrel of Brent oil, serving as a reference for the costs of the raw material, increased by 5% following the strikes of October 2 to reach 74 dollars the next day. This increase comes after a gradual fall in Brent prices in recent months, with the cost of a barrel rising to $93.79 on October 19, 2023.

If current prices are therefore far from equaling those of last year or the peak of the invasion of Ukraine, a period during which the barrel briefly rose to more than 120 dollars, the threat of an explosion could explode Brent and threaten the global economy.

A vital strait for the world economy

This surge in prices would not be solely due to Israel’s decommissioning of Iranian energy infrastructure. Because if Iran is “only” in tenth place among world oil producers, with 3.3 million barrels per day according to OPEC figures reported by Euronews, the country has considerable power to exert pressure via its control of the Strait of Hormuz: part of Saudi, Iraqi and even Kuwaiti hydrocarbons pass through this strategic area to supply customers all around the world.

According to Bloomberg, nearly 30% of the oil traded in the world passes through the Persian Gulf. An Iranian blockade, enabled by its control of one side of the strait and of islands like Hormoz or Qeshm, would therefore be a real catastrophe.

Tehran’s control of areas around the Strait of Hormuz gives it considerable power to exert pressure. Nimbo by Kermap – contains modified Sentinel 2 data

A clash that could involve other actors

However, members of the Organization of the Petroleum Exporting Countries and other oil producers, united under the name OPEC+, recently changed strategy, with the aim of producing more oil from December 2024.

The organization has until now coordinated a voluntary reduction in oil production: the increase in production can therefore counterbalance a disruption in Iranian exports. But in the event of Iran blocking the Strait of Hormuz, this additional oil would be difficult to export.

A blockade could also push several countries to intervene in the strait, including the United States. The targeting by Tehran and Baghdad of ships passing through the Persian Gulf during the Iran-Iraq war in the 1980s pushed Washington to deploy numerous ships.

Following the damage of an American vessel by a Tehran mine, the US Navy went so far as to ravage the Iranian navy in 1988 in Washington’s largest naval engagement since World War II. An escalation of clashes could therefore force other countries to intervene, further reinforcing the scale of the conflict in the Middle East a year after its outbreak.

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