“If I were in their shoes, I’d be thinking about other alternatives than striking oilfields,” Biden said.
The Islamic republic exports 1.7 million barrels of oil a day, mainly from a terminal on Kharg Island, about 25km off the country’s southern coast.
“The market was too comfortable overlooking geopolitical risks,” said Ben Luckock, global head of oil at Trafigura. “Where the price goes from here will be determined by what Israel specifically targets within Iran. We are all watching and waiting.”
Analysts and traders fear that Israel could target Kharg Island and Iran and its proxies could respond by striking energy operations in the region.
Brigadier General Ali Fadavi, deputy commander of Iran’s elite Revolutionary Guards, warned on Friday that if Israel made any “misstep” Tehran would “target all its energy sources, including power stations, refineries and gasfields”.
In an interview with Al Mayadeen, a Lebanese TV channel close to Iran and Hezbollah, he said that while Iran had lots of energy infrastructure, Israel had much less and it was vulnerable to “a precise and devastating strike”.
The Iraqi militant group Kata’ib Hezbollah, which is backed by Iran, said on Thursday that an “energy war” would lead to a huge loss of supplies for the world but hinted other countries’ ability to export would be targeted.
“If the energy war starts, the world will lose 12m b/d of oil,” Kata’ib Hizbollah said on Telegram. “And as Kata’ib Hizbollah said before, either everyone enjoys [the oil] or everyone is deprived.”
Oil exporters in the Opec cartel together have more than 5m barrels a day of spare production capacity, mainly in Saudi Arabia and the United Arab Emirates, which could be brought online in case of disruption to Iranian supplies.
But if Iran blocked tanker traffic through the Strait of Hormuz, dubbed “the world’s most important oil transit chokepoint” by the US Energy Information Administration, the move would halt about a fifth of global consumption. This would include exports from big Gulf producers Saudi Arabia, UAE, Kuwait and Iraq.
Qatar also exports its liquefied natural gas through the strait. A full closure of the strait has never happened before. If it did, it would lead to “runaway oil prices” of $150 a barrel or higher, said Claudio Galimberti, chief economist at Rystad Energy.
“If it just lasts for 10 days it’s going to be an enormous disruption, if it lasts for a month it’s going to be killing the global economy.”
During the Iran-Iraq war in the 1980s, Tehran mined the strait in what became known as the tanker wars, but any effort to choke supply would also affect Iran’s own ability to export.
“The Strait of Hormuz is important for us because we are sending most of our oil through there, so any instability there would have consequences on us.
“Right now we are not going to think about that, but if things get worse, certainly those who have the upper hand in persuading the leader to radicalise the issue will think about this,” an Iranian official said. “That is a worst-case scenario, if this exchange of attacks continues.”
Iranian officials have also been discussing the crisis with their energy-exporting Gulf neighbours, with Iranian President Masoud Pezeshkian meeting Qatar’s emir Sheikh Tamim bin Hamad al-Thani and Saudi foreign minister Prince Faisal bin Farhan in Doha this week.
Written by: Tom Wilson, Andrew England and David Sheppard in London, James Politi in Washington and Myles McCormick in Houston
© Financial Times
