On Friday, the price of Brent crude closed at just over $78 per barrel, following remarks from U.S. President Joe Biden about potential threats to Iran’s oil facilities. This marked a 9% increase in oil prices over the week, the largest rise in two years.
Experts warn that disruptions to shipping through the Strait of Hormuz, which the U.S. Energy Information Administration identifies as the world’s most critical oil chokepoint, could push prices as high as $150 per barrel. Claudio Galimberti, Senior Analyst at Rystad Energy, stated that any attack on Iranian energy infrastructure could have a significant impact on oil prices.
Last week, concerns over a possible attack on Iran’s Kharg Island export terminal led empty tankers to leave the area. Kharg Island typically handles most of Iran’s crude exports, which are transported through the Strait of Hormuz. The facility includes a ten-berth loading jetty, a four-berth sea island, and crude storage tanks with a capacity of around 3.3 million tonnes.
Although Iran’s oil production capacity of approximately 1.7 million barrels per day is relatively small, experts suggest that the market could absorb any loss through the reversal of voluntary production cuts by OPEC members, which amount to around 5 million barrels per day. Discussions around easing these restrictions have been ongoing but were recently postponed until January.
The primary concern remains the potential for Iran to attempt to block the Strait of Hormuz, through which about 20% of the world’s oil is transported. Major oil producers, including Saudi Arabia, the UAE, Kuwait, and Iraq, rely on this vital waterway, as does Qatar for its liquefied natural gas exports. Energy markets opened with caution in Asia today, with oil prices expected to rise further as the conflict in the Middle East intensifies.
Developments in the Strait of Hormuz over the coming days are likely to have a significant impact on global energy markets and the broader economy.
