Iran-Israel Escalation Heightens Risk of Global Oil Supply Disruptions

The recent Iran-Israel conflict has created a significant threat to global oil supplies following Iran’s ballistic missile attack on Israel. This escalation, in retaliation for Israel’s killing of Hezbollah leader Hassan Nasrallah and an Iranian commander, has raised concerns that Iran’s oil infrastructure could become a target in potential Israeli counterattacks.

Saul Kavonic, senior energy analyst at MST Marquee, noted that the scope for a material disruption to global oil supply is imminent, with up to 4% of the world’s crude production at risk. If oil infrastructure or tighter sanctions come into play, prices could surge past $100 per barrel, according to analysts.

Iran’s missile attack followed Israel’s intensified offensive in southern Lebanon against Hezbollah, a militant group backed by Iran. Most of the missiles launched were intercepted, and there were no reported fatalities in Israel. Oil prices have already seen a sharp rise, with Brent crude up 1.44% at $74.62 per barrel and U.S. West Texas Intermediate (WTI) futures climbing 1.62% to $70.95 per barrel.

Despite the initial spike in oil prices, global supply has been cushioned by increased U.S. production and lower demand from China. However, as Iran is the third-largest oil producer within OPEC, with nearly four million barrels per day, a disruption in its supply could send global prices soaring.

A New Phase of Conflict Bob McNally, president of Rapidan Energy Group, warned that as Israel shifts focus from Gaza to Lebanon and Iran, the war may enter a new phase with more energy-related consequences. The potential for a large-scale Israeli retaliation could exacerbate the situation, leading to further oil market volatility. McNally cautioned that the conflict is “going to get worse before it gets better.”

Ross Schaap of GeoQuant, which tracks political risk, observed a significant rise in risk levels following the missile strikes, suggesting that even larger events may unfold. Josh Young, CIO of Bison Interests, pointed out that an Iranian supply disruption could cause oil prices to jump beyond $100 per barrel if Iranian exports are taken offline.

As the conflict continues, global markets are bracing for potential long-term impacts on oil supply and prices.