Panoramic view of the Isfahan refinery in Iran on November 8, 2023. The refinery is one of the largest in Iran and is considered the first in the country in terms of diversity of petroleum products.
Fatmeh Bahrami | Anadolu | Getty Images
Oil watchers now see a real threat to crude supplies after Iran launched a ballistic missile attack on Israel, escalating conflicts in the Middle East.
Iran launched an attack on Israel on Tuesday in retaliation for its recent killings of Hezbollah leader Hassan Nasrallah and an Iranian commander in Lebanon.
Analysts told CNBC that Iranian oil infrastructure may soon become a target for Israel as it considers a counterattack.
“The conflict in the Middle East could ultimately impact oil supplies,” said Saul Kavonic, senior energy analyst at MST Marquee. “Serious disruptions to oil supplies are already imminent.”
He said these latest developments could be a game-changer after a long period of “geopolitical risk fatigue” in which traders shrugged off the threat of oil supply disruptions caused by tensions in the Middle East and Ukraine.
Kavonik added that with the conflict now directly surrounding Iran and up to 4% of global oil supply at risk, an attack or tougher sanctions could push oil prices back to $100 a barrel again.
Oil prices year to date
Iran's latest missile attack came after Israel deployed ground troops to southern Lebanon to step up its offensive against the Iran-backed militant group Hezbollah. Most of the 200 missiles launched were intercepted by Israeli and US defense systems. There have been no reports of Israeli casualties as a result of the attack.
The attack came after Israel deployed ground troops to southern Lebanon in an escalating offensive against the Iran-backed militant group Hezbollah.
After the missile attack, oil prices rose by more than 5% in the previous trading day, and then gradually fell back to 2%. Global benchmark Brent crude futures are currently up 1.44% at $74.62 a barrel, while U.S. West Texas Intermediate crude futures are up 1.62% at $70.95 a barrel.
The war is entering a new, more energy-related phase as Israel pivots from Gaza to Lebanon and Iran.
Bob McNally
President, Rapidan Energy Group
Since the armed conflict between Israel and Hamas broke out on October 7 last year, the disruption to the oil market has been limited. Andy Lipow, president of Lipow Oil Associates, said the oil market remains under pressure as rising U.S. production exacerbates supply conditions and weak Chinese demand drives prices lower.
Iran is OPEC's third-largest producer, producing nearly 4 million barrels of oil per day, according to the Energy Information Administration.
A new phase in the war?
Other analysts echoed Kavonik's warning.
“The war is entering a new, more energy-related phase as Israel pivots from Gaza to Lebanon and Iran,” Bob McNally, president of Rapidan Energy Group, told CNBC. He added that he expected Israeli retaliation for the missile attack. is “disproportionately large.”
“It's going to get worse before it gets better,” he said.
Ross Schaap, director of research at GeoQuant, which uses structural and high-frequency data to produce political risk scores, said the organization's risk analysis model for the Israel-Iran conflict has remained within three standard deviations of the mean trend over the past few years. That number has risen sharply over the past 12 years, following the latest missile attack.
Schaap said the results suggested a “larger event” was expected.
Bison Interests Chief Information Officer Josh Young also observed that attacks on Iran's oil infrastructure are increasingly likely to disrupt oil supplies. Said that this marked a “major escalation” by Iran.
Young predicted that if Iranian exports were disrupted by an attack, oil prices would soar above $100 a barrel.