Oil prices could soar to $100 a barrel and beyond, according to market analysts, after Iran’s air strike against Israel reignited fears of a regional war. Iran has vast oil resources and is the third largest producer in the OPEC oil cartel. Any disruption in its ability to supply global markets could drive oil prices higher.
Markets will also be watching closely for developments or the 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 each day.
Any attack on Iran’s oil production or export facilities would drive the price of Brent crude to $100, and the closure of the Strait of Hormuz would drive prices to $120 to $130.
Iran’s actions
Iran launched more than 300 drones and missiles at Israel on Saturday night, marking the first time Iran has launched a direct military attack on the Jewish state.
The “vast majority” of Iranian drones and missiles were intercepted, according to Israel Defense Forces spokesman Rear Admiral Daniel Hagari. He said a 10-year-old girl was “seriously injured by shrapnel” but that there were no other casualties. Iran’s attack came in retaliation for an Israeli attack on its consulate in Damascus, Syria, earlier this month.
Iran accused Israel of bombing part of its embassy on April 1, killing seven Iranian military personnel, including three senior commanders. Iran’s UN mission said that after the airstrike, “the matter can be considered concluded.” It warned, however, that its response would be “significantly tougher” if there were further Israeli retaliation.
The movement of oil prices
Oil prices traded slightly lower in early morning trade in Asia. Global benchmark Brent fell 0.31 percent to $90.17 a barrel on Monday, while U.S. West Texas Intermediate futures fell 0.44 percent to $85.28 a barrel.
Coupled with years of underinvestment in oil exploration and development, recent geopolitical developments are making global crude supplies more vulnerable. Underinvestment makes the supply more fragile and increases the possibility of a super peak well above $100 if the supply is interrupted.
Oil prices will hit all-time highs this cycle due to a decade of underinvestment in exploration and development. Oil is facing a significant natural decline in production. The decline rate for a conventional oil well is about 15%.
Oil prices have risen in recent months due to trade disruptions and delays caused by naval attacks in the Red Sea by the Houthis, who claim solidarity with the Palestinian people.
Intensification of sanctions against Iran
A dominant force in Middle East politics, Iran funds and supports groups opposed to Israel, including the Palestinian militant group Hamas, Lebanon’s Hezbollah, Yemen’s Houthis and the Syrian government of Bashar al-Assad.
The ongoing conflict in Gaza has often been referred to as a proxy war between Israel and Iran. If Iran further escalates hostilities, the US and its allies will come under “renewed pressure to re-tighten sanctions.
Iranian oil exports have increased in recent years with the US seemingly passively accepting it as a means to maintain downward pressure on global oil prices.
