Oil Market Braces for Disruptions As Israel-Iran Conflict Escalates
- The ongoing Iran-Israel conflict is posing a significant threat to oil supply in the Middle East, with energy infrastructure becoming a key target for both sides.
As the Israel-Iran conflict shows no signs of abating, oil supply from the Middle East could become vulnerable if the two sides decide to attack vital energy infrastructure in the region, RBC Capital Markets said, warning that energy, and oil in particular, are now “clearly in the crosshairs.”
The Israeli strikes on Iranian nuclear sites and military leadership at the end of last week escalated with Iran’s response with missiles toward Israel, some of which penetrated Israel’s Iron Dome missile defense system and hit cities and energy infrastructure.
An Iranian missile attack caused damage to the Haifa refinery in Israel over the weekend, prompting a partial shutdown, Israeli media reported, saying the facility remained operational.
As the conflict drags into its fourth day on Monday, oil is now in the crosshairs and a clear concern for oil market supply, according to an RBC note carried by Bloomberg.
“The fact that both sides targeted energy infrastructure on the second day of fighting represents a clear cause for concern,” the analysts wrote.
Iran’s Kharg Island—a major crude terminal and trade hub handling 90% of Iranian crude oil exports, could be targeted by Israel at some point, RBC says. Iranian proxies, for their part, could target oil facilities in neighboring Iraq, OPEC’s second-largest oil producer after Saudi Arabia, according to the bank.
“The White House has probably sought to dissuade Prime Minister Netanyahu from a Kharg Island strike, given that it could remove 90% of Iranian oil exports,” the bank’s analysts wrote.
“However, the longer this conflict continues, the odds increase that Israel could seek to curtail the funds that Iran would need to reconstitute its nuclear program.”
The oil market’s biggest fear is a disruption of flows via the Strait of Hormuz—the world’s most vital crude flow lane where more than 20 million barrels of crude pass every day.
By Tsvetana Paraskova for Oilprice.com