A significant concern has emerged within the oil market following Iran’s ballistic missile attack on Israel, signaling an escalation of Middle Eastern conflict that poses a genuine threat to crude oil supplies.
On November 8, 2023, Iran launched a missile strike on Israel in retaliation for the recent deaths of Hezbollah leader Hassan Nasrallah and an Iranian commander in Lebanon. Analysts suggest that Iranian oil infrastructure might soon be targeted by Israel as a countermeasure.
Saul Kavonic, a senior energy analyst at MST Marquee, stated that the ongoing Middle Eastern conflict has the potential to disrupt oil supplies significantly. After a period of traders disregarding geopolitical risks from the Middle East and Ukraine, these developments might herald a tangible threat to oil supply. Kavonic estimated that up to 4% of the global oil supply is at risk, which could drive prices back to $100 per barrel if the conflict intensifies or sanctions tighten.
This attack is part of a broader military escalation, with Israel deploying ground troops into southern Lebanon to intensify offensives against the Iran-backed militant group Hezbollah. Despite most of the 200 launched missiles being intercepted by Israeli and U.S. defenses, the situation has heightened tensions without resulting in fatalities in Israel.
Following this missile strike, oil prices saw a substantial increase of over 5%, before settling to a 2% rise. The global benchmark Brent crude is trading at $74.62 per barrel, up by 1.44%, while U.S. West Texas Intermediate futures rose 1.62% to $70.95 per barrel.
Bob McNally, President of Rapidan Energy Group, remarked that the conflict’s shift in focus from Gaza to Lebanon and Iran signifies a new phase with heightened energy implications. McNally anticipates a considerable retaliatory response from Israel, predicting that the situation is likely to worsen before any improvement.
Andy Lipow, president of Lipow Oil Associates, noted that disruptions to the oil market have so far been minimal since the conflict began on October 7 last year. Factors such as increased U.S. oil production and weakened Chinese demand have continued to exert downward pressure on prices. Iran, being the third-largest oil producer within the Organization of the Petroleum Exporting Countries (OPEC), contributes nearly four million barrels of oil daily to the global supply.
Echoing the sentiment of increased risk, Ross Schaap, head of research at GeoQuant, highlighted that the organization’s political risk model detected a significant spike following the missile strikes, suggesting the potential for “much bigger events.” Josh Young, CIO of Bison Interests, concurring with the increased likelihood of an attack on Iranian oil infrastructure, deemed this a critical escalation by Iran. Young speculated that an interruption to Iranian exports due to an attack could propel oil prices to exceed $100 per barrel.
