Concerns about oil supplies are growing as the situation in the Middle East becomes more complex. The fear of an impact on global production is becoming more and more tangible.
Oil prices have surged sharply due to growing geopolitical tensions in the Middle East. Statements by US President Joe Biden on a potential Israeli attack on Iranian oil infrastructure have heightened investors’ concerns. While the market reacts strongly to geopolitical events, instability in this critical region for global oil supplies could lead to serious disruptions in energy markets.
Oil prices linked to geopolitical tensions
Oil prices have risen sharply this week, with a barrel of Brent reaching $78.37 on Friday, an increase of almost 8% in just three days. This is the strongest increase recorded since the start of 2023. This surge is mainly due to growing tensions in the Middle East, exacerbated by the statements of American President Joe Biden.
Asked about the possibility of Israeli strikes targeting Iranian oil infrastructure, the president replied: “We are discussing it”, quoted by Les Echos. Without further details, he cast doubt on a potential military escalation in the region.
As of August 2023, Iran produced around 3.4 million barrels per day, according to the International Energy Agency (IEA), while its exports reached 1.7 million barrels per day, largely destined for China. If an Israeli attack were to damage Iranian production infrastructure, it could remove up to 1.5 million barrels of crude from the global market, according to Citigroup estimates.
At the same time, the Kharg island terminal, through which 90% of Iranian exports pass, would be a strategic target in a possible conflict. This terminal, located in western Iran, is of vital importance to the country, whose oil revenues reached $12 billion in the first three months of the Iranian fiscal year, an increase of nearly 35% compared to the previous year.
A market under pressure
The Middle East, particularly the Strait of Hormuz, is a hotspot for global oil trade. Around 20% of global oil production passes through this strategic route. A shutdown or disruption in this region could lead to another price spike.
According to experts at Clearview Energy Partners, a disruption in the Strait of Hormuz could add between $13 and $28 to the price of a barrel of Brent, an increase that would put even more pressure on global economies already weakened by inflation.
Although the fears are very present, some analysts temper by recalling that OPEC +, the cartel of oil exporting countries, has significant reserve capacity. Indeed, since the reduction of production quotas, OPEC+ members have the possibility of putting up to 2.2 million barrels per day back on the market, in the event of a disruption in Iranian supply.
Saudi Arabia, which plays a leading role within OPEC+, alone has a reserve capacity of 3 million barrels per day, which could largely offset a possible drop in Iranian production.
Despite these reservations, volatility remains pervasive in the markets, fueled by the possibility of an escalation of tensions between Israel and Iran. A response from Tehran, notably with the blockade of the Strait of Hormuz or attacks on oil infrastructure in neighboring states, could have global repercussions on oil supplies.
