If the United States had taken decisive military action against Iran’s nuclear weapons program a couple of decades ago, similar to the recent bombing over the weekend, oil prices would have surged dramatically. As trading resumes this week, there is anticipation of a potential spike in prices; however, the long-term implications remain uncertain. According to Muyu Xu, a senior Asia crude oil analyst at Kpler, a global commodities and shipping data firm, oil traders are now faced with the challenge of assessing whether the recent American attack will escalate into broader conflicts that could disrupt exports from the Persian Gulf.
Should the fighting intensify, resulting in damage to oil-loading facilities or interruptions in tanker traffic, we could see a significant increase in oil prices. So far, despite the escalation of the Israel-Iran conflict this month, there have been no major disruptions reported. However, Israeli air strikes have caused fires at a refinery and a depot supplying refined products to Tehran. “Until now, we haven’t seen a single barrel removed from the market,” Ms. Xu noted, highlighting the current stability in oil supply.
In the event of military retaliation by Iran aimed at disrupting oil flow, it would primarily impact China, which maintains a close relationship with Iran and imports nearly all of Iran’s oil exports. Since the recent onset of hostilities, oil prices have increased by approximately 10 percent, following a surprise attack on Iran by Israel on June 13. However, prices dipped on Friday after President Trump announced he would make a decision within two weeks regarding U.S. involvement in the conflict.
Since the Iranian Revolution in 1979, U.S. policymakers have expressed concerns that Iran might retaliate against American interests by using mines or missiles to obstruct tanker traffic in the Strait of Hormuz. This strategic waterway is crucial, as it facilitates the transit of a sixth of the world’s oil, with Iran's coastline lining the northern side of the strait. Notably, China imports about a third of the oil transported through the Gulf, according to Kpler’s data. Additionally, China played a significant role in brokering a rapprochement between Iran and Saudi Arabia two years ago, further tightening their energy ties.
In comparison, the United States imports less than 3 percent of the oil from the Persian Gulf, primarily from northern Saudi Arabia. The U.S. transformed into a net exporter of oil in 2020, thanks to advancements in fracking technologies that significantly boosted domestic oil production. Meanwhile, Iran’s oil exports have faced a steep decline in recent years, although there was a partial rebound last year as China increased its purchases following the diplomatic thaw with Saudi Arabia.
The United States and Europe have imposed extensive sanctions on the purchase of Iranian oil as a tactic to pressure Tehran into abandoning its nuclear weapons program. The consequences of these sanctions, combined with the recent military actions and geopolitical tensions, continue to shape the landscape of global oil markets, making it imperative for stakeholders to closely monitor developments in the region.
