The United States and Israel launched strikes on Saturday (local time) in a joint operation targeting Iranian military and naval forces. US President Donald Trump’s decision to target Tehran has raised new risks for much of the world’s oil supply, Bloomberg reported.
Tehran is responsible for nearly 3.3 million barrels of oil a day, or nearly three percent of global production, making it the Organization of the Petroleum Exporting Countries’ (OPEC) fourth-largest producer. However, its strategic location gives it a far greater influence on global energy supplies than production numbers alone suggest.
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On one side, Iran borders the Strait of Hormuz, a key shipping route through which roughly 20% of the world’s oil passes, including supplies from major producers such as Saudi Arabia and Iraq. Oil markets are closed for the weekend and there is no word on whether the attacks on Tehran and the retaliatory strikes launched in the Middle East targeted any energy assets.
Oil companies suspend supplies in Strait of Hormuz: Report
A Reuters report, citing a top official at a major trading company, said some oil companies had suspended fuel supplies in the Strait of Hormuz amid renewed military confrontation in the region. “Our ships will remain in place for several days,” the official said. Roughly 20 million barrels of oil and other fuels travel through the arterial waterway that runs between the Arabian Peninsula and Tehran, with any suspension threatening a global disruption.
What to watch out for:
Iranian oil production
Despite ongoing sanctions, Iran’s oil production has risen to 3.3 million barrels per day from less than two million barrels per day in 2020. Tehran has become adept at circumventing these sanctions and sends nearly 90% of its exports to China. Some of Tehran’s largest oil fields are Ahvaz and Marun and the West Karun cluster, all in Khuzestan province.
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Iran’s primary refinery, established in Abadan in 1912, has a processing capacity of more than 500,000 barrels per day. Other major refineries include the Bandar Abbas and Persian Gulf Star plants, which process both crude oil and condensate, an ultra-light form of oil that Iran produces in significant quantities. The capital Tehran also operates its own refinery.
For exports, Kharg Island in the northern part of the Persian Gulf serves as Iran’s main oil terminal and logistics center. According to Iran’s semi-official Mehr news agency, there was an explosion on the island on Saturday, although no further details were provided and no direct mention of damage to oil facilities. Kharg Island is equipped with several loading docks, jetties, offshore berths and storage tanks capable of holding tens of millions of barrels of oil. In recent years, the terminal has handled export flows in excess of 2 million barrels per day.
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Although U.S. sanctions discourage many international buyers from buying Iranian oil, independent Chinese refiners continue to buy it, usually at deeply discounted prices. To move oil abroad, Iran relies on an aging fleet of tankers, many of which operate with their tracking transponders turned off to reduce the risk of detection.
Danger in the Middle East
Earlier this month, Iran’s Supreme Leader Ayatollah Ali Khamenei warned of a “regional war” if Washington decided to attack Tehran. The country claimed that it was within its power to close the Strait of Hormuz. While this could turn out to be an extreme move that Iran has never taken, it remains a worst-case scenario for global markets as Hormuz serves as a choke point for most of the Gulf’s oil exports.
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Almost a fifth of the world’s oil passes through the Strait of Hormuz. While other OPEC members, including Saudi Arabia and the United Arab Emirates, have some ability to reroute their shipments through pipelines that avoid the Strait of Hormuz, a complete shutdown of the key waterway is likely to cause a massive disruption to exports in the region and could raise oil prices.
(With inputs from Bloomberg)
