As tensions mount in the Middle East, recent developments regarding Israel’s military campaign against Iran have raised alarms about potential disruptions in global oil markets. Israel aims primarily to degrade Iran’s nuclear program, while its actions could inadvertently lead to shifts in the region’s political landscape. According to news reports, Israel planned to assassinate Iranian Supreme Leader Ayatollah Ali Khamenei. Former President Donald Trump, to our surprise, ended up vetoing the plan. So much so that Israeli Prime Minister Benjamin Netanyahu has even denied that regime change is an official goal. He acknowledged that the war might bring about the collapse of Khamenei’s regime.
Together, these developments are putting downward pressure on global oil prices. Since Israel began its bombing campaign against Iran just a little more than a week ago, prices have jumped by about 10%. Analysts are concerned that the situation could loom larger. This would likely force oil prices over $100 per barrel, particularly if shipping routes are disrupted as they likely would be in the strategically crucial Strait of Hormuz.
Israel’s Military Objectives
Israel’s primary goal in its ongoing campaign against Iran focuses on neutralizing the threat posed by Tehran’s nuclear ambitions. The Israeli government sees Iran’s nuclear program as an immediate threat to its national security and regional stability. Indeed, Israel was said to have wanted to assassinate Ayatollah Ali Khamenei at the outset of the war. This step reflects their deep desire to take hostilities to a new and serious level.
“Despite Netanyahu’s denial of aiming for regime change, he recognizes that the military operations could destabilize Khamenei’s leadership. “They’re not calling it regime change from without, they’re calling it regime change from within,” noted Scott Modell, highlighting the complex dynamic at play.”
This recognition has fueled fears about how Iran will respond, especially when its survival is under attack. During a potential conflict, the Islamic Republic could conduct retaliatory strikes against regional oil infrastructure and shipping lanes. This action would confirm its ascendancy in the region.
Risks to Global Oil Supply
Market analysts are intensely watching the fallout from increasing tensions in the region. RBC’s Helima Croft tells Reuters that Iran could go back to its 2019 playbook. These tactics included attacking crude oil infrastructure across the Middle East. This constellation of factors presents extraordinary risks to the global oil supply and pricing itself.
Global oil prices would experience significant surges if Iran is able to fully execute its threat to mine the Strait of Hormuz and/or otherwise impede shipping. Alternatively, experts are warning that escalating Iranian attacks on regional key oil infrastructures like the one surrounding the new uranium enrichment site at Fordow could cause oil prices to hit historical pricing highs. They project a minimum increase of $4 to $6 per barrel. Yet, the consequences of such moves would not only be felt in the adjacent areas but would echo across international markets.
“There is a 30% risk of Iran disrupting energy supplies by retaliating against infrastructure in the Gulf or vessels in the Strait of Hormuz,” stated Bob McNally. This potentiality begs grave questions about the duration of any impending shipping disruption. Some analysts are cautioning that these disruptions may last for weeks or even months, contrary to market assumptions that U.S. naval forces would quickly re-establish equilibrium.
Regional Shipping Concerns
With the increased tensions come stark warnings from energy companies and shipping officials. QatarEnergy and the Greek Shipping Ministry are advising their ships to avoid the Strait of Hormuz. They are legitimately worried about the risk of further Iranian aggression in the region.
According to recently released records, Iranian forces have already started jamming ship transponders in earnest, making shipping operations in the region even more dangerous and difficult. “These are not calm waters even though we have not had missiles flying in the straits,” remarked Helima Croft, underscoring the precarious situation facing maritime operations.
Iran would likely use its arsenal of hundreds and hundreds of short-range precision missiles against key energy infrastructure in the Gulf. They could hit US oil tankers transiting through the Persian Gulf. There are worries that Iran might try to mine the Strait of Hormuz, adding to the chaos caused by disruptions. Nearly 20 percent of the world’s oil flows through this narrow waterway. Even a short-term disruption here could have catastrophic effects on global energy markets.