This week’s escalation of war in the Middle East, due to Iran’s ballistic missile attack on Israel, has put oil markets under pressure. The barrel of European Brent rose from the $71.7 at which it was trading before the attack to $78.7, an increase of almost 10% in just four trading days. The latest upward impulse that oil has experienced comes against a backdrop of global oversupply of crude oil, a situation which led barrel prices to reach the lowest levels of the year in September, below 70 dollars in the case of Brent.
The underlying fundamental context has not changed: oil is abundant, at a time of low demand and supply, even artificially limited by the Organization of the Petroleum Exporting Countries and its external partners ( OPEC+), continues to exceed global consumption. . The latest rebound is based on fears that Israel could counterattack Iran by attacking its oil facilities, wiping out up to 3.3 million barrels of the supply currently produced by the Shiite country. After US President Joe Biden acknowledged that this plan was under debate, prices rose with particular virulence on Thursday.
The question today is whether countries with excess production capacity could supply the market with Iranian oil if it disappeared. The answer is yes, and by far, but with a nuance: as long as the Strait of Hormuz is not closed, the most important crude oil transport point on the planet and through which 20% of the world’s production of this raw material passes.
OPEC and the Strait, in figures
At first glance, it might seem that the markets were carried away this week by the sentiment of increases in the price of oil. Saudi Arabia, on its own, can open the taps if necessary and supply almost all of Iran’s production, if it disappears from the map. Saudi Arabia has excess production capacity of around 3 million barrels per day, and if we add that of its OPEC colleagues, this figure approaches 6.4 million barrels per day (6, 8 million barrels, less the 500,000 barrels of excess capacity that Iran has). which would not count in the equation).
The American bank Citi puts forward several scenarios in its latest report, depending on the nature of the Israeli attack. For Citi, the worst scenario, “if Israel attacked Iranian export terminals and destroyed 90% of them, would reduce supply by around 1.5 million barrels per day”, because it must also be taken into account that a good part of Iranian crude production is intended for the domestic market.
Thus, the real danger lies in the possibility of closing the Strait of Hormuz, a strategic passage for raw materials which, according to data from the United States Energy Administration, is the area through which 20% of the global supply of crude oil, approximately 20 million barrels of oil per day. This would mean a deterioration in supply sufficient to significantly increase crude oil prices. To give you an idea, Bank of America pointed out in the last quarter of last year that ““If the Strait of Hormuz was closed for an extended period, oil could exceed $250.”
Along the same lines, Thomas Hempell, head of macro analysis at Generali AM, recognizes that “an extreme event of this type could significantly increase oil prices due to supply shortages.” Citi, for its part, insists that “any closure of the Strait of Hormuz will represent a turning point for the global oil market and for the global economy”, but also considers that this is a “low scenario”. likely”.
Of course, in line with Bank of America, Citi warns that this would be a truly worrying step for the market, although not impossible to resolve. “If this happens, oil markets would be in uncharted territoryand prices would likely surpass all-time highs. Of course, we believe this would be temporary, as market forces adapt and seek alternative routes,” they point out.
