Brent crude oil prices can touch $150 a barrel (bbl) — up a whopping 103 per cent from the current levels — in the worst-case scenario if the Israel–Iran geopolitical tensions escalate, suggest analysts.
However, if the conflict is contained, then the energy markets will readjust quickly.
Last week, Israeli air strikes on Iran had impacted energy rates with crude and natural gas prices surging as it reignited concerns about a wider conflict in West Asia.
Brent crude oil prices hit $78.5/bbl in the wake of the air strikes before dropping to around $75/bbl.
Title transfer facility (TTF) gas prices — a virtual trading point for natural gas in the Netherlands — surged over 5 per cent to Euro 38.24/MWh last week in the backdrop of the developments.
The attacks, according to analysts at Rabobank International, expose the wider risks to crude and natural gas supplies from the region despite the initial quick reversal of price gains for both markets.
If crude, refined products and/or liquid natural gas (LNG) supplies from key producers like Saudi Arabia, the UAE, and Qatar are curtailed through direct attacks on energy infrastructure or the closure of the Strait of Hormuz, crude oil price spikes could break and sustain above the $120/bbl mark, they said.
“In case Saudi oil, gas, shipping, or refining infrastructure are targeted and destroyed, crude prices would rise above $120/bbl, even as far as $150/bbl on the initial panic buying,” wrote Michael Every, global strategist at Rabobank International in a co-authored note with Joe DeLaura and Florence Schmit.
Meanwhile, Iran has claimed dominion over the Strait of Hormuz, which is a major choke point central to the global energy market.
The strait is a transit point for 17 per cent of the world’s oil flows (about 17 million barrels per day) and convoys of tankers from Kuwait, Iraq, Bahrain and Saudi Arabia.
Qatar, Oman and the UAE operate around 98 million tonnes of LNG export capacity, about 18 per cent of the world’s LNG supply.
Most of these volumes also transit through the strait, reports suggest.
“Another 10 per cent rise in oil is possible due to ongoing war.
"After that, it may cool off if the conflict moderates due to international pressure.
"In case war intensifies and goes on for a few months, then the oil price may hit $100/bbl,” said G Chokkalingam, founder and head of research at Equinomics Research.
The threat of around 1.5 million barrels per day (b/d) of Russian supply going dark through sanctions during the initial stages of the invasion of Ukraine by Russia had sent Brent prices to $139/bbl three years ago.
This was only for about a week, and prices stayed above $100/bbl for only five months, data shows.
According to Platts OPEC Survey, Iran pumped 3.25 million b/d of crude in May, with around 2.2 million b/d of refining capacity and 600,000 b/d of condensate splitting capacity.
However, exports dipped below 1.5 million b/d in May as floating storage levels surged amid rising tensions.
“If Iranian crude exports are now disrupted, Chinese refiners —the sole buyers of Iranian barrels — would need to seek alternative grades from other Middle Eastern countries and Russian crudes.
"This could also boost freight rates and tanker insurance premiums, narrow the Brent-Dubai spread, and hurt refinery margins, particularly in Asia,” said Richard Joswick, head of near-term oil analysis at S&P Global Commodity Insights.
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