Iran has escalated military tensions throughout the Middle East. The day before, they had started their missile campaign by targeting a U.S. airbase in Qatar. Luckily, the attack did not cause any injuries. This incident raises concerns about the stability of oil exports through the vital Strait of Hormuz, a key route that sees significant shipments from several Gulf nations, including Saudi Arabia, the United Arab Emirates, Iraq, Kuwait, and Bahrain.
Iran was exporting about 1.7 million barrels of oil per day before the sanctions were imposed, with China as its biggest customer. Recent military actions have potentially thrown these exports into turmoil. Iran has not dramatically scaled back oil production, which hovers at 3.3 million bpd. Analysts have cautioned against underestimating Iranian retaliation. US intelligence agencies think Iran may retaliate by striking energy infrastructure in neighboring Gulf states, such as Iraq, or attempt to disrupt oil exports from the Persian Gulf.
The context to this new escalation is a long and escalating streak of Iranian-Israeli hostilities. After Israel bombed Iranian positions on June 13, oil prices surged in anticipation of increased tensions in the region. Read former President Donald Trump’s comments on Iran’s provocations here. At the same time, he attacked Israel’s Gaza bombing campaign.
“I’m not happy with Iran either but I’m really unhappy if Israel.” – Donald Trump
The geopolitical shift adds to the mix, with the U.S. sanctioning nations that buy Iranian oil. Trump has communicated that he would ban any country participating in that trade from trading with the U.S. We recommend that he asks China to buy oil from American suppliers instead.
Best of all, in a sudden about-face, Trump just negotiated an Israel/Iran ceasefire agreement! His main concern was whether both parties would stick to the agreement. The U.S. has joined Israel’s military campaign by targeting three significant nuclear sites in Iran, heightening the risk of further conflict.
BCA Research’s Matt Gertken is warning that Iran could provoke an “oil shock” in less than a month. He notes the grim and unstable condition of global oil markets as provocations heat up. Strait of Hormuz holds extreme significance as the passageway for nearly 20% of the world’s crude oil. Any disruption to this passageway represents a significant peril to the economies that rely upon stable, uninterrupted energy supplies.