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Israel’s strike against Iran threatens to spark conflicts in regions that disrupt oil supply in the Middle East, reviving decades-old questions about whether traders could respond by closing key industry chokepoints in the Strait of Hormuz in the Tehran Strait.
Global benchmark Brent Crude surged 12% to $78.5 a barrel early Friday morning after Israel launched dozens of strikes against Iran’s nuclear program and military facilities, killing at least two top commanders.
Prices have returned to $75 per barrel as it became clear that Israel is not targeting Iran’s oil infrastructure, but traders said the price could rise significantly depending on how Tehran retaliates.
“The market is rather mild as Israelis chose not to target oil infrastructure, but in Iran, we know that it is Achilles’ heels,” pointing to the risks that Tehran responds by attacking oil facilities in the Gulf or tankers in the Strait of Hormuz.
Approximately 221 million oil from Iran, Iraq, Kuwait, Saudi Arabia and the United Arab Emirates pass through narrow waterways that separate the Islamic Republic from the Gulf countries every day, making up about a third of the world’s seawater supply. Iran repeatedly threatened to close the strait in the event of an attack, but was unable to block all traffic.
Helimacroft, Head of Global Commodity Strategy at RBC Capital Market, said:
Tehran was able to launch attacks on tankers to disrupt traffic, as he did during the Iran-Iraq war in the 1980s. However, such a step would also confuse Iran’s more than 1 million b/d exports to China.
When Iran and Israel traded airstrikes in April and October 2024, Iran was the first to attack in Israel’s retaliation.
“This time, the sequence has been reversed. This is a change that could have a major impact on market expectations and risk perceptions,” said Jorge Leon, head of geopolitical analysis at energy consultant Tristad. He said Iran could push prices up “over $20 per barrel” if it disrupts oil flows through the Strait of Hormuz, targets local oil infrastructure, or attacks US military assets.
Similarly, Israel could escalate the attack by targeting Iran’s key Hague terminal, which is responsible for 90% of the Islamic Republic’s oil exports and the main source of funding for government and nuclear programs.
Traders said prices below levels at the beginning of the year before US President Donald Trump launched a global tariff blitz will be much higher if they believe a direct attack on oil infrastructure is likely.
“The correct price for oil is almost certainly not where it is today,” said a senior trade executive. “The basis (of supply and demand) should be priced at least $10 lower. If you want a risk premium, it should probably be $10 higher.”
