Israel-Iran War: A Strike on Oil Assets Could Revive Inflation Samvada World

The potential targeting of Iran’s critical oil assets by Israel poses the risk of eliminating nearly 2 million barrels per day from the global oil market.
Iranian oil exports reached a five-year high of 1.7 million barrels in May, with approximately 90% of its oil being illicitly delivered to China.
If Israel were to target Iran’s oil infrastructure, an attack on Kharg Island would likely be the most devastating.

The recent surge in oil prices is attributed to speculation regarding potential Israeli actions targeting Iran’s oil or nuclear facilities. This speculation has raised concerns about the possibility of oil prices reaching $200 per barrel and the potential implications for the global economy.

Following Iran’s launch of approximately 180 ballistic missiles at Israel, resulting in minimal damage or casualties, Israeli Prime Minister Benjamin Netanyahu issued a stern warning to Iran, emphasizing the repercussions of their actions.

In response to Iran’s previous significant strike in April, which involved 300 drones and missiles, Israeli officials had promised a limited counterattack. However, the current situation has led to discussions about a “significant retaliation,” with speculation focusing on the possibility of Israel targeting Iran’s oil, military, and nuclear infrastructure.

There is increasing pressure on Netanyahu from senior Israeli officials, including former Prime Minister Yair Lapid, to pursue a targeted response against Iran. Meanwhile, US President Joe Biden has urged for restraint, indicating a willingness to consider alternative approaches to addressing the situation if in Israel’s position.

Impact on Global Oil Prices

The geopolitical tensions have led to a sharp increase in oil prices, with Brent crude experiencing a 17% rise in a week, reaching $81.16 (€74). However, there has been a subsequent decline in prices following indications from the Iran-backed Hezbollah militia expressing a willingness to pursue a ceasefire in its conflict with Israel along the Lebanese border.

The potential targeting of Iran’s critical oil assets by Israel poses the risk of eliminating nearly 2 million barrels per day from the global oil market. This has led to speculation among traders about the possibility of a return to triple-digit oil prices. The last time oil prices exceeded $100 was shortly after Russia’s full-scale invasion of Ukraine in February 2022. Some fear oil prices could reach $200

There are concerns that oil prices could surge to $200. Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, stated in an interview with US broadcaster CNBC, “If you [Israel] take out oil installations in Iran, easily you [oil prices] could go to $200 plus.”

Iran, being one of the world’s largest oil producers, faces stringent international sanctions due to an enduring dispute with the West over its nuclear ambitions. Despite this, Iranian oil exports reached a five-year high of 1.7 million barrels in May, with approximately 90% of its oil being illicitly delivered to China through Tehran’s “ghost fleet” of nearly 400 tankers, disguising their movements to breach sanctions.

Carole Nakhle, CEO of the London-based consultancy Crystal Energy, emphasized the significant dependence of the Iranian economy on revenues generated from its oil exports. Any disruption to these revenues would have severe impacts on the economy.

If Israel were to target Iran’s oil infrastructure, an attack on Kharg Island would likely be the most devastating. The island serves as Iran’s primary oil export terminal, playing a crucial role in facilitating the country’s official and clandestine oil trade. Located in the Persian Gulf, approximately 40 kilometres (25 miles) off the Iranian coast, Kharg Island possesses extensive storage facilities, allowing it to handle 90% of Iran’s oil exports. As most of Iran’s tankers load from the Kharg facility, any disruption could significantly impact the country’s ability to fulfil its export commitments.

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