Iranian
flag with stock graph and an oil pump jack miniature model are seen in
this illustration taken October 9, 2023. REUTERS/Dado Ruvic/Illustration
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LONDON,
Feb 28 (Reuters) - Global energy markets face one of their gravest
shocks in decades as joint U.S. and Israeli strikes on Iran and Tehran’s
retaliatory missile attacks across the Gulf disrupt oil exports from
the world’s most important producing region.
The
scale of the disruption will likely be determined by the duration of
the conflict, but for now the threat and the uncertainty are already
enough to severely impact flows from the region that accounts for 20% of
global oil supplies.
Barring
a swift resolution, oil prices will likely see steep increases when
trading opens on Monday morning. Benchmark Brent crude oil prices rose
in recent weeks to around $70 a barrel, their highest since August 2025
as investors braced for military confrontation in the Middle East.
The United States and Israel carried out military strikes on Iran
on Saturday, targeting senior leaders and plunging the Middle East into
a widening conflict. U.S. President Donald Trump said the attacks would
eliminate a security threat to the United States and give Iranians an
opportunity to topple their rulers.
For now, there is no confirmed damage to oil and gas infrastructure from retaliatory Iranian strikes.
Explosions were reported in the United Arab Emirates
and Kuwait, two major oil exporters. Meanwhile, Qatar, the world’s
second-largest exporter of liquefied natural gas, said it intercepted
missiles aimed at the country.
Blasts
were also heard in Bahrain and near Iran’s Kharg Island, the terminal
through which about 90% of its crude exports normally flow, although
shipping data suggests Tehran had transferred most of the oil stored
there onto tankers in recent days.
Crucially,
there have so far been no reports of disruptions to shipping through
the Strait of Hormuz, the narrow waterway between Iran and Oman that
handles nearly 20 million barrels per day of crude oil and refined
products.
CAUTION MEANS DISRUPTION
But the absence of physical damage may not matter much.
The
risk that tankers could be stranded inside the Gulf, north of Hormuz,
or that vessels could be targeted, is already enough to force producers,
traders and shippers to rethink movements of oil and LNG. Reuters has
reported that some oil majors and trading houses have suspended
shipments through the strait for several days.
That caution is unlikely to ease until there is far greater confidence in the safety of the region’s sea lanes.
Tanker
freight rates, which had already been climbing as tensions escalated,
are set to rise further. Benchmark rates for very large crude carriers
from the Middle East to China have more than tripled since the start of
the year, reflecting both heightened risk and the shrinking pool of
willing vessels.
The
key questions now are whether energy infrastructure will be directly
targeted and how quickly the U.S. military can secure shipping routes
across the Gulf and the Strait of Hormuz.
It is worth noting that the Strait of Hormuz has never been fully blocked.
While
Iran is unlikely to sustain a prolonged blockade, it has the capability
to disrupt traffic temporarily. The U.S. Navy would almost certainly
respond swiftly, but even short-lived attacks or mine-laying operations
could have outsized effects on prices and supply.
Such
tactics would not be unprecedented. During the 1980s Iran-Iraq war,
Iran attacked commercial shipping and U.S. naval vessels, prompting
President Ronald Reagan to deploy U.S. forces to escort tankers in
Operation Earnest Will. More recently, in late 2007 and early 2008,
there were repeated confrontations between Iranian and U.S. naval
forces. And in April 2023, Iran's navy seized the Advantage Sweet crude
tanker, chartered by Chevron, in the Gulf of Oman. The vessel was
released more than a year later.
GLOBAL SUPPLY CUSHION
The
global oil market is relatively well supplied today, after production
from the United States, Brazil, Canada and other countries rose in
recent years.
Saudi Arabia, the world’s top oil exporter, has also not sat idle in the face of the risk to supply. In recent days the kingdom increased crude shipments,
which are set to exceed 7 million barrels per day in February, the
highest since April 2023, according to shipping analytics firm Kpler.
OPEC+, which comprises the Organization of the Petroleum Exporting Countries and allies like Russia, is expected to agree on an output increase during a meeting on Sunday.
Of
course, disruptions to export routes from the Middle East could negate
much of the production increases from regional producers, though Saudi
and the UAE have some alternative export routes.
The
scale of the U.S. and Israeli strikes, and Trump’s language, suggest
Washington is bracing for a sustained military campaign aimed at
severely weakening Iran’s leadership.
How
threatened Iran's leadership feels may determine whether it escalates
further by attacking a broader range of targets across the region,
including oilfields, export terminals and processing facilities.
But
even without that worst-case scenario, the conflict is already set to
disrupt vital energy supplies from the Middle East in ways not seen for
decades.
(The views expressed here are those of the author, a columnist for Reuters)
Writing by Ron Bousso; Editing by Lisa Shumaker
Our Standards: The Thomson Reuters Trust Principles.
Opinions
expressed are those of the author. They do not reflect the views of
Reuters News, which, under the Trust Principles, is committed to
integrity, independence, and freedom from bias.
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