A refinery in the northern Persian Gulf in Iran.
Saeed Arabzadeh | Afp| Getty Images
Oil prices could rise to $100 a barrel and above, market watchers said, after Iran launched an airstrike on Israel reigniting fears of a regional war.
Iran hosts vast oil resources and is the third largest producer in the OPEC oil cartel. Any disruption to its ability to supply global markets could send oil prices higher, analysts told CNBC. Markets will also closely monitor developments in or closure of the Strait of Hormuz, a key choke point that lies between Iran and Oman and through which a fifth of the world’s oil production flows daily.
“Any attack on oil production or export facilities in Iran would push the price of Brent crude oil to $100, and the closure of the Strait of Hormuz would lead to prices of between $120 and $130,” said Andy Lipow, president of Lipow Oil. Associates.
Iran launched more than 300 drones and missiles into Israel on Saturday night, marking the first direct military attack against the Jewish state. According to Israel Defense Forces spokesman Rear Admiral Daniel Hagari, the “vast majority” of Iranian drones and missiles have been intercepted. He said a 10-year-old girl was “seriously injured by shrapnel”, but that there were no other victims.
Underinvestment makes the supply more fragile and raises the possibility of a super spike well above $100 if the supply is disrupted.
Young Josh
portfolio manager at Bison Interests
Iran’s attack was retaliation for Israel’s attack on its consulate in Damascus, Syria, earlier this month. Iran accused Israel of bombing part of its embassy compound on April 1, killing seven Iranian servicemen, including three senior commanders.
Iran’s United Nations mission he declared that following the air attack the “matter can be considered concluded”. He warned, however, that his response would be “considerably more severe” if there were further Israeli retaliation.
Compounded by underinvestment
Oil prices were trading slightly lower in morning trading in Asia. Global benchmark Brent slipped 0.31% to $90.17 a barrel on Monday, while US West Texas Intermediate futures fell 0.44% to trade at $85.28 a barrel.
In addition to years of underinvestment in oil exploration and development, recent geopolitical development makes global crude supplies more vulnerable, said Josh Young, portfolio manager at oil and gas investment firm Bison Interests.
“Insufficient investment makes supply more fragile and raises the possibility of a super spike well above $100 if supply is disrupted,” he said.
Oil prices since the beginning of the year.
“I think oil prices will hit all-time highs this cycle, due to a decade of underinvestment in exploration and development,” Young added.
Oil is facing a sizable natural decline in production. According to Morgan Stanley estimates, the decline rate of a conventional oil well is about 15%, absent any capital expenditure.
Oil prices have risen in recent months due to trade disruptions and delays caused by maritime attacks on the Red Sea by the Houthis, who claim solidarity with the Palestinian people.
Increase sanctions against Iran?
A dominant force in Middle East politics, Iran finances and supports groups that oppose Israel, such as the Palestinian militant group Hamas, Lebanese Hezbollah, Yemen’s Houthis, and the Syrian administration of Bashar al-Assad. The ongoing conflict in Gaza has often been characterized as a proxy war between Israel and Iran.
US President Joe Biden condemned Iran’s attack on Israel, adding that Washington helped “shoot down almost all incoming drones and missiles.”
“Our commitment to Israel’s security against threats from Iran and its proxies is ironclad,” Biden added. said separately on social media platform X. But he also told Israeli Prime Minister Benjamin Netanyahu that the United States will not participate in offensive operations against Iran, a senior administration official told NBC News.
If Iran further escalates hostilities, the United States and its allies would find themselves under “renewed pressure to tighten sanctions once again,” Betashares chief economist David Bassanese wrote in a note after the attack.
Iranian oil exports have increased in recent years and the United States “seemingly passively accepts this as a means of maintaining downward pressure on global oil prices,” he added.