The recent attack by Iran on Israel, following the killing of an Iranian general in an Israeli strike, has reignited controversies about potential impacts on oil prices. This marks the first direct attack on Israel since 1991, and although Iran described the counterattack as ‘limited’, the drones involved traveled at speeds of 185 km per hour before being intercepted by Israel.
Despite expectations of a severe response from Israel, the head of Israel’s army recently stated that the country will retaliate, while the Iranian president promised a harsher counterattack in return.
This escalating conflict between Iran and Israel has heightened concerns about the potential for broader conflict in the Middle East, which could significantly affect global oil prices. The United States Energy Information Administration notes that Iran contributes only about 2% to global oil supplies. However, the geopolitical implications are much broader.
When the Organization of the Petroleum Exporting Countries (OPEC) was founded in the 1960s, Iran, along with Iraq, Kuwait, Saudi Arabia, and Venezuela, controlled a majority of the global oil exports. Today, the 13 member countries of OPEC produce about 40% of the world’s oil, where 60% of the petroleum traded globally originates.
Iran, once a major player in the global petroleum supply, has seen its role diminish significantly since it was sanctioned in 2019 by the US and EU due to nuclear weapons development and human rights violations. Currently, China is Iran’s primary oil buyer, purchasing at a 15% discount.
The conflict raises concerns about the possible disruption of the Strait of Hormuz, a critical waterway through which a quarter of the world’s maritime oil trade flows. If Iran retaliates by disrupting this strait, global oil markets could face a significant choke point, according to The Conversation.
Speaking to an anonymous source in the energy sector in Nigeria, they mentioned that all oil-producing countries, including Nigeria, Angola, and Gabon, would be affected. They explained that higher oil prices are generally beneficial for oil producers. However, if shipping routes and supply chains are compromised, these countries could experience increased fuel costs for airlines and shipping, leading to higher prices for consumers.
A source at the Nigerian Midstream & Downstream Petroleum Regulatory Authority (NMDPRA) noted that the ongoing conflict has already incorporated a risk premium of $5 to $10 into the oil prices, indicating that current prices are higher than they would be if geopolitical tensions were less intense.
In conclusion, the evolving dynamics of the Iran-Israel conflict could reshape the landscape of global oil markets, influencing not only regional politics but also the economic stability of oil-dependent economies around the world. The international community remains watchful as the situation develops, with potential implications for energy security and economic activities globally.
