An “all-out war” appears poised to break out in the Middle East, the region of the world with the greatest concentration of oil production. Additionally, the main artery of global crude oil trade passes through this area. However, despite the intense rises and peaks, oil remains far from $100 and the panic does not appear to be spreading across the stock markets, beyond the initial “scare” caused by the Iranian missile attacks on Israel. Even if the threat exists, the Strait of Hormuz, the artery of world oil, could continue to function with a certain normality thanks to what can be called certain “emergency brakes”.
The Strait of Hormuz, located between Oman and Iran, connects the Persian Gulf to the Gulf of Oman and the Arabian Sea. It is undoubtedly the most important oil artery in the world, as large volumes of oil pass through the strait. In 2022, its oil flow averaged 21 million barrels per day (bpd), the equivalent of approximately 21% of global consumption of petroleum liquids. In the first half of 2023, the total flow of oil through the Strait of Hormuz remained relatively stable compared to 2022, as increased flows of petroleum products partially offset declines in crude oil and condensates.
Between 2020 and 2023, the volumes of crude oil, condensates and petroleum products that transited through the Strait of Hormuz increased by 2.4 million barrels per daythanks to the recovery in oil demand after the economic crisis caused by the covid pandemic. Flows through the Strait of Hormuz in 2022 and the first half of 2023 accounted for more than a quarter of the world’s total oil traded by sea. Additionally, about a fifth of global liquefied natural gas trade also passed through the Strait of Hormuz in 2022, according to a report from the U.S. Department of Energy.
In fact, such is the importance of this strait in global trade that Bank of America warned in 2023 that the price of crude oil could skyrocket “if shipments through Hormuz, a point where nearly 20 percent of oil passes by LNG in the world, would be closed for a significant period”, explain the Bank’s experts, “crude oil could exceed 250 dollars per barrel and natural gas 50 dollars. Why is the market not clearly talking about this scenario at this time?
Iran is “alone”
The fact that after the first rebound yesterday with the bombings, oil price increases have not increased further reinforces analysts’ interpretation that investors continue to believe that crude oil will remain “on the sidelines” of this escalation. “The crude oil market has thus far been extremely short-term and complacent in the face of geopolitical risk,” analyzes Bob McNally, president of Rapidan Energy Group and advisor in the George W. Bush administration. “The risk premium for crude oil would only increase if the market experiences an escalation directly affecting infrastructure or energy flows, or if Israel attacks critical infrastructure that threatens the regime,” he emphasizes.
Unlike in the past, many countries surrounding Israel are allies today (even if they are already “hidden” with their little mouths). Saudi Arabia, United Arab Emirates, Egypt, Oman, Jordan, Morocco and even Qatar They present a friendly relationship with Israel. Probably never in history has Israel maintained such cordial relations with countries that, until recently, were direct enemies. Even though the Strait of Hormuz is largely controlled by Iran, the rest of the Arab countries need it to export their crude oil, a more than important “emergency brake”.
Frederick Kempe, president and executive director of the Atlantic Council, highlights this “loneliness” of Tehran, noting that the countries that signed the Abraham Accords with Israel have not given up hope of returning to the path of peace. standardization. In 2020, the United Arab Emirates, Bahrain, Sudan and Morocco signed these peace agreements with Israel. “None severed relations with Israel or disengaged from the agreements. And even though many, notably the United Arab Emirates, “have tried to ease tensions with Iran, they are doing so with their eyes wide open to the constant threat posed by Iran and with the firm belief that in the long term, Israel will be more integrated into the Middle East, and not less, as Iran wishes. » Kempe concludes.
The shadow of the United States and the domestic situation
Although Israel has promised retaliation against Iran and newspaper archives maintain that there will be retaliation, the key to everything is how far Tehran is willing to go. And, in this sense, its internal situation and the shadow of the United States constitute other “emergency brakes”. “Israel has placed Iran in a no-win situation. If it fails to step up its offensive and attack Israel, it will lose credibility with its allies, who believe it has not done enough to help them However, the escalation could lead to attacks of “Israel’s retaliation against Iran itself, including against its nuclear installations”, concludes Kempe. The Iranian crisis in recent hours appears to be something of a compromise, an attack sufficient to appease its hard-liners and buy time without going so far as to trigger a wider war with Israel or, even worse, with the United States.
“Iran is likely to intervene, not because it wants Democrats to lose the US elections – quite the contrary – but because it cannot abandon Hezbollah or let the leaders of its partners (or their own) are murdered with impunity. But Iran doesn’t want to be bombed. It is vulnerable due to its latent internal instability and social unrest,” emphasize the geopolitical experts from BCA Research in their latest commentary.
The thesis of these experts is that Tehran has no interest in expelling Democrats from the White House, because they are less likely to apply sanctions on Iranian oil exports or to use military force to prevent Iran to acquire nuclear weapons. Therefore, they argue, before the elections, Iran is more likely to carry out symbolic attacks on oil supplies than to cause a massive shock. Indeed, according to BCA, Tehran’s priority is to ensure that Donald Trump, who has already imposed strong sanctions, does not return to power. U.S. and Israeli officials say Iran-sponsored assassination attempts against former President Trump and his return to the White House would increase the risks that Tehran moves to upend the Hormuz oil market.
Within the UBS investment team led by CIO Mark Haefele, the baseline scenario is still not one of all-out war between Israel and Iran: “There are indications that the attack of Iran could have aimed to mark its determination, without provoking a more serious reaction. energetic retaliation by Israel. An Iranian missile attack on Israel in April was telegraphed in advance, caused little damage, and led to a limited attack by Israel on an Iranian military base after Iran’s attack in April. “The United States urged Israel to respond with restraint.”
Iran’s interests
These analysts piece together other previous indications that Iran may want de-escalation in exchange for some relief from economic sanctions. Iranian President Masoud Pezeshkian told the United Nations General Assembly that Iran is “ready to engage with participants in the 2015 nuclear deal. Furthermore, they point out, Iran faces its own internal challenges, as highlighted by large-scale protests in 2022 following the death of Mahsa Amini, who died in police custody after being arrested for failing to cover her hair.
“Iran may not be interested in entering into an all-out war with Israel while members of the Axis of Resistance are weakened and the United States has increased its presence in the region.. That said, hard positions can still prevail. The risk of a miscalculation on the part of Iran, its allies or Israel continues to increase,” concludes UBS.
In case Iran ends up triggering the final spiral, there would be other “emergency brakes”. Even if Tehran attempts to restrict shipping through the Strait of Hormuz, Qatar’s relatively warm relations with Iran mean that Qatari liquefied natural gas (LNG) supplies to the West could still pass through there. , and oil supplies from Saudi Arabia and the United States. The UAE could potentially be diverted via pipelines to Red Sea ports.
