Oil prices climbed above $70 a barrel Wednesday evening, fueled by reports of a potential U.S. Attack on Iran, raising concerns about significant disruptions to global oil supplies. The possibility of military action comes as Iran signaled its readiness to respond forcefully to any aggression, conducting military exercises in the strategically vital Strait of Hormuz. The situation has prompted analysts to assess a range of scenarios, each with the potential to dramatically impact the price of oil.
The Strait of Hormuz, a narrow waterway between Oman and Iran, is one of the world’s most important oil transit routes. Any disruption to traffic through the strait could have far-reaching consequences for the global economy. Experts are now evaluating how different levels of conflict could affect oil prices, from targeted strikes to a full-scale blockade.
Potential Scenarios and Price Impacts
Nadia Martin Wiggen, Director at Svelland Capital, outlined several potential scenarios and their likely impact on oil prices. She pointed to previous actions by the Trump administration, such as the intervention in Venezuela, as a precedent, noting a preference for targeted strikes over broader military engagements. “If that’s the situation, I think the market would expect oil prices to increase by around $5 as a result of actual attacks on Iran,” Wiggen stated.
However, the potential for price increases extends beyond a limited strike. Wiggen highlighted scenarios involving the removal of Iran’s Supreme Leader Ayatollah Ali Khamenei, which could lead to prolonged instability and significantly higher prices. She also noted the risk associated with potential U.S. Maritime blockades targeting Iranian oil shipments. “In that case, we’re talking about around 1.5 to 1.6 million barrels of oil per day that could be at risk of not being delivered,” she explained.
Further escalation, such as attacks on Iranian oil fields or refining infrastructure, could drive prices even higher. The most extreme scenario, according to Wiggen, would be the closure of the Strait of Hormuz. “If it doesn’t reopen quickly, that would be a shock to the market,” she warned, adding that such a closure would also likely destabilize the region and potentially draw in neighboring countries.
Market Response and Contrasting Views
Despite the heightened tensions, some analysts believe the oil market remains relatively calm. Bjarne Schieldrop, an oil market analyst at SEB, noted that the current oil price, hovering around $67 per barrel, is only slightly above its long-term average. “For the time being, the oil market is expressing particularly little concern about serious disruptions to oil exports from the Middle East,” Schieldrop said. He emphasized that the key factor determining price increases isn’t necessarily an attack on Iran itself, but rather whether that attack disrupts the flow of oil.
Schieldrop suggests that the market currently doesn’t anticipate a complete halt to Iranian oil exports and that Donald Trump has historically favored maintaining oil flow to retain prices down. “Donald Trump would most prefer that a lot of oil flows from Iran into the world market without sanctions and lower oil prices,” he stated. “It’s not pricing in a catastrophe,” he concluded.
The U.S. Navy maintains a significant presence in the region, including the aircraft carrier USS Dwight D. Eisenhower, which transited the Strait of Hormuz in November 2023. Recent reports indicate an Iranian drone came within 1,500 yards of the carrier during operations in the area.
What to Watch Next
The situation remains highly fluid and dependent on diplomatic developments and potential military actions. The coming days and weeks will be critical in determining whether tensions escalate further or de-escalate. Monitoring the actions of both the U.S. And Iran, as well as the response from other regional actors, will be crucial for understanding the potential impact on global oil markets. The possibility of a disruption to oil supplies remains a significant risk, and the market will likely react swiftly to any further developments.
What are your thoughts on the potential for conflict in the Middle East and its impact on global energy markets? Share your insights in the comments below.
