escalating oil prices could surge significantly if the US becomes embroiled in conflict.
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There's a potential oil crisis looming on the horizon if the US decides to join the fray in the conflict between Iran and Israel. The Strait of Hormuz plays a crucial role in this scenario.
Should the US intervene in the Iran-Israel conflict, oil prices could skyrocket beyond $100, according to Manuel Frondel, an energy expert at the RWI-Leibniz Institute. He warned, "Given US involvement and an escalation of conflict, oil and gas prices could rise severely. If we see a prolonged conflict with the Strait of Hormuz being blocked, we're potentially looking at prices above $100."
The price of Brent crude has already experienced an increase from $68 to $76 per barrel (159 liters), Frondel noted. He highlighted, "The Strait of Hormuz is vital as it facilitates the transport of Gulf states and approximately one-fifth of the world's oil exports."
Iran itself only accounts for a meager 2% of global oil demand, but its threats to the Strait pose a significant risk to global energy security.
Nuclear Calamity, Nouripour's Concern
Prominent Green politician Omid Nouripour, of Iranian descent and Deputy President of the Bundestag, has echoed calls for de-escalation amidst the Israel-Iran conflict. Nouripour stressed, "The stability of the entire region is at stake, and the catastrophic consequences of an unchecked fire would be unforeseeable, even for Israel."
He criticized the Iranian regime for its conspicuous neglect of civil defense systems, leading to constant uncertainty among the population. Simultaneously, the Iranian government has intensified its repressive measures, with escalating arrests and internet shutdowns to stifle dissent and protests.
Nouripour highlighted the very real threat of a nuclear Iran, adding, "The Iranian state doctrine of annihilating Israel since 1979 must not be forgotten. Israel, in turn, has the right to protect its existence and security."
Geopolitical Implications
A war between the US and Iran could cause a massive oil price spike, primarily due to the strategic importance of the Strait of Hormuz. Here's a breakdown of the key factors and their potential impact:
Significance of the Strait of Hormuz
- The Strait serves as a vital maritime chokepoint, handling around 20% of global petroleum liquids consumption, consisting of approximately 15 million barrels of crude oil daily and another 5 million barrels of petroleum products[3].
- The Strait links the Persian Gulf with the Gulf of Oman and Arabian Sea, enabling the passage of the world's largest crude oil tankers, making it an essential part of global energy security[1][3].
Potential Consequences for Oil Prices
- Supply Disruptions: Any conflict involving Iran could threaten the security of shipping through the Strait of Hormuz, causing considerable disruption to oil supply[1][3].
- Price Spikes: Potential or actual disruptions would likely lead to a sharp rise in oil prices. Experts estimate prices could surge to $120 per barrel or higher[1]. Currently, prices are already on the rise due to regional tensions, with Brent nearing multi-month highs and West Texas Intermediate reaching a one-year high[1][2].
- Volatility: The uncertainty stemming from the conflict increases market volatility, with speculation and risk assessments driving prices higher before actual disruptions occur[1].
Factors Affecting the Scale of Impact
- Spare Production: While some spare production capacity exists among countries like Saudi Arabia and the UAE, much of their oil exports rely on the Strait of Hormuz. Limited alternative pipeline routes and the inability to bypass the Strait significantly restrict the ability to maintain exports if the waterway is blocked[3].
- Global Economic Growth: A sluggish global economy has reduced oil demand somewhat, easing the potential impact. However, if demand remains robust or rebounds, supply disruptions would have a more pronounced effect on prices[3].
- OPEC+ Production: Voluntary cuts by OPEC+ have kept extra capacity in the market. Yet, much of Russia’s spare production is constrained by sanctions and unable to replace Gulf oil[3], limiting the group's flexibility to offset a Hormuz blockade.
Strategic and Geopolitical Dynamics
- The Strait of Hormuz represents one of Iran's strategic leverage points. Any US military action could escalate threats to this passage, increasing geopolitical risk premiums in the oil market[1][3].
- The US and its allies' responses, such as potential military measures to secure the Strait, would add to market uncertainty but ultimately contribute to reestablishing some stability in the flow of oil.
In short, a US-Iran conflict would likely result in a significant oil price spike, primarily due to the strategic importance of the Strait of Hormuz. A prolonged conflict and blockage of the Strait could drive oil prices beyond $120 per barrel[1][3][2]. The scale of the impact depends on spare production availability, the ability to circumvent the Strait, global demand conditions, and geopolitical developments in the midst of the conflict.
Sources: ntv.de, mau
- Iran
- Iran Conflict
- Iranian Nuclear Program
- Oil Price
- USA
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