Israel, Iran, oil assets and global inflation – DW – 10/11/2024

Israel, Iran, oil assets and global inflation – DW – 10/11/2024
Israel, Iran, oil assets and global inflation – DW – 10/11/2024

When Iran launched some 180 ballistic missiles at Israel a week ago, causing little damage or casualties, Israeli Prime Minister Benjamin Netanyahu warned that Tehran had made a “big mistake” and would “pay for it.”

Iran’s first major attack on Israel in April, using 300 drones and missiles, sparked a limited counterattack. But Israeli officials have promised “significant retaliation” this time, fueling speculation that Israel could attack Iran’s oil, military and nuclear infrastructure.

Netanyahu is under intense pressure from some senior Israeli officials, including former Prime Minister Yair Lapid, to strike Iran’s “most painful target,” while US President Joe Biden has called for calm. On October 4, Biden said that he, in Israel’s place, would think about other alternatives instead of attacking Iranian oil fields.

Oil prices soared by geopolitical risk

Since Iran’s latest attacks, oil prices have skyrocketed. Brent crude rose 17 percent in a week to $81.16 (74 euros), although prices have fallen again after the Iran-backed Hezbollah militia showed its willingness to agree to a ceasefire in its conflict with Israel, on the other side of the Lebanese border.

If Israel were to damage Iran’s most critical oil assets, it could remove nearly 2 million barrels a day from the global oil market. Some traders speculate that, if necessary, oil prices would return to triple digits. The price of oil last exceeded $100 shortly after Russia launched its large-scale invasion of Ukraine in February 2022.

Oil prices could reach $200

“And [Israel] destroys oil facilities in Iran, [los precios del petróleo] they could easily reach $200 or more,” Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, told US broadcaster CNBC last week.

Exports from Iran, one of the world’s biggest oil producers, are subject to tough international sanctions, part of a long-running dispute with the West over Tehran’s nuclear ambitions.

Despite this, Iranian oil exports hit a five-year high of 1.7 million barrels in May, according to energy analysis firm Vortexa. About 90 percent of its oil is delivered to China, much of it illicitly, through Tehran’s so-called ghost fleet, made up of nearly 400 tankers, which disguise their movements to violate sanctions.

“The Iranian economy is very dependent on the revenue it generates from its oil exports,” Carole Nakhle, chief executive of London-based consultancy Crystol Energy, told DW. “Any disruption to that revenue would have serious consequences for the economy.”

What oil facilities could Israel attack?

If Israel were to attack Iran’s oil infrastructure, the most devastating attack would likely be on Charg Island. The island is home to Iran’s main oil export terminal, which plays a critical role in facilitating the country’s official and clandestine oil trade.

Located in the Persian Gulf, about 40 kilometers from the Iranian coast, Charg Island has vast storage facilities, allowing it to handle nine-tenths of the Islamic republic’s oil exports. Most of Iran’s oil tankers are loaded from the Charg facility, so any disruption could severely impact the country’s ability to meet its export commitments.

Other possible targets would include the Bandar Abbas oil refinery, located in the port city of the same name in the southern Gulf, which plays a key role in crude oil exports but also hosts military installations. The Abadan refinery, in the southwest, with a capacity of 400,000 barrels per day, is vital for national consumption.

An Israeli attack on refineries could not cause oil prices to rise as an attack on the Charg export terminal would. However, it would cause more misery for the Iranian population, already battling high inflation, a weakening currency and high unemployment, as a result of years of Western sanctions.

The South Pars gas field, shared with Qatar and located in the Gulf, is the largest natural gas field in the world. It contains about 8 percent of the world’s natural gas reserves and is a major source of income for Iran. Meanwhile, the Bushehr oil terminals are located near a nuclear plant of the same name, so Israel could achieve a double blow if it decided to attack that area.

Excess capacity keeps oil prices in check

The rise in oil prices has been moderated to some extent by “abundant supplies” in global markets, Nakhle said, noting that OPEC+ has almost 5 million barrels a day of spare capacity. At the same time, demand is not growing rapidly, he said, as China’s appetite for oil has been hit by a slow economic recovery from the COVID-19 pandemic.

But those supplies could quickly run out if available capacity dwindles in the event of a broader regional conflict. Tehran has repeatedly threatened to block the Strait of Hormuz, a critical point for about 20 percent of the world’s oil supply. This would add to the problems facing maritime trade after the Iran-backed Houthis attacked shipping in the Red Sea over the past 11 months.

Iran’s Foreign Minister Abbas Araghchi this week threatened “an even stronger response” to any Israeli attack on its infrastructure. Some speculators have even compared worsening tensions in the Middle East to the oil crisis of the 1970s, triggered by a war between Israel and several Arab states that caused oil prices to quadruple, which Nakhle considers unwise.

“Oil is not as important in energy consumption as it was in the 70s. Back then, it covered 50 percent of our energy needs worldwide,” explains the executive director of the consulting firm Crystol Energy. “The Middle East is no longer the only producer,” he adds, pointing out how increased production from the United States, Brazil, Canada and Guyana has helped diversify supplies.

Refinery in southern Iran. An attack could mean many economic losses for the country.Imagen: Vahid Salemi/AP/picture alliance

More likely that Israel will attack the regime and the Iranian Army

Avner Cohen, professor of terrorism and nonproliferation studies at the Middlebury Institute of International Studies in Monterey, United States, does not believe an Israeli attack on Iran is imminent. Although attacks on Iran’s oil facilities “can be ruled out,” Cohen believes Israel is more likely to attack military and regime facilities, including those belonging to the country’s elite Revolutionary Guard.

“If Israel were to attack important economic interests, such as oil facilities and oil refineries, the damage to the global economy would be felt,” he told DW, adding that he hopes Netanyahu “is smart enough not to take that step.”

Any prolonged rise in energy prices could disrupt central banks’ efforts to control inflation, which has been rising for decades, especially in the West. That could lead to the return of higher interest rates, which would weaken the global economy, hurting consumer spending and business investment.

With less than a month to go until the US presidential election, and with Washington increasing pressure on Netanyahu, Cohen believes Israel’s response is likely to be more symbolic so as not to force Tehran into further escalation, which could involve Arab neighbors. and to the United States.

“Neither of the two countries [Irán e Israel] wants to create a complete cycle of violence that leads to a war of attrition. “It would be bad for both countries, it could force the United States to intervene and it would bring even more chaos to the Middle East,” he analyzes.

At the same time, he says, “there is no communication between both parties, there is no clarity about what the red line could be and there are very few interlocutors who can influence both parties. So the margin of error is very high.”

(rmr/rml)

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