Iran Strikes: Oil Prices to Surge as Supply Threatened

Oil prices are climbing as U.S. And Israeli strikes against Iran escalate geopolitical tensions in the Middle East. The market is reacting to the potential for significant disruptions to global oil supplies, with benchmark Brent crude already rising to levels not seen in six months.

The strikes, which took place on Saturday, February 28, have fueled concerns about the stability of oil production in the region. Brent crude, the European benchmark, reached $73 a barrel, a more than 2% increase from the previous day. West Texas Intermediate, the U.S. Benchmark, also rose, surpassing $67 a barrel. This price surge reflects the importance of Iran and the Persian Gulf in the global energy market.

As of January, Iran was producing 3.4 million barrels of crude oil per day, representing approximately 3% of global oil supply, according to the International Energy Agency. Despite U.S. Sanctions, Tehran continues to export oil, primarily to China, utilizing a “ghost fleet” to circumvent restrictions. The country’s relatively low extraction costs – around $10 per barrel, according to analyst Arne Lohmann Rasmussen of Global Risk Management – make it a significant player in the market.

Iran is among the world’s ten largest oil producers, currently exporting between 1.3 and 1.5 million barrels per day, despite sanctions. The country holds the world’s third-largest proven crude oil reserves, making it a strategically important long-term energy source. Any damage to Iranian oil infrastructure from the strikes could have significant consequences.

According to Ole Hansen, an analyst at Saxo Bank, over 80% of Iran’s oil exports are destined for China. A key risk to the oil market is a potential blockage of the Strait of Hormuz, a critical shipping lane connecting the Gulf to the Gulf of Oman. Iranian Revolutionary Guards reportedly stated on Saturday that the strait is “de facto closed,” according to Iranian media.

Approximately 20 million barrels of crude oil transited the Strait of Hormuz daily in 2024, accounting for nearly 20% of global oil consumption. The strait’s narrow width (approximately 50 kilometers) and shallow depth (not exceeding 60 meters) make it particularly vulnerable. “Even a simple doubt regarding security in the strait would push many ships, for insurance reasons, to encounter difficulties crossing it, as premiums would increase sharply,” Rasmussen noted.

In response to the strikes, Iran targeted several cities in the Gulf, including locations hosting U.S. Military bases. Further escalation of the conflict could lead to significant disruptions in energy supplies and a sharp increase in oil prices.

An OPEC+ meeting is scheduled for Sunday morning with participation from eight member states. The oil market will open overnight Sunday into Monday. For Tehran, driving up oil prices could be a means of exerting pressure on Washington.

With U.S. Midterm elections approaching later this year, Donald Trump has pledged to maintain low energy prices. According to John Evans, an analyst at PVM, the U.S. President may want to avoid “the risk of a $100 barrel,” a level last reached at the onset of the war in Ukraine.

(AFP)