Amit Bhandari
Ever since Iran hit Israel with a missile barrage on October 1, a potential conflict between the two has created fear in the energy markets.
The worst-case scenario being envisaged is a retaliatory strike by Israel either on Iran’s nuclear facilities or its oil infrastructure. A strike on Iran’s oil infrastructure will hit Iran’s oil exports, a financial lifeline for Tehran. Iran’s potential retaliation could seriously affect the oil and gas production in its neighbouring countries, dealing a far more serious blow to the global energy market. The oil exports of Saudi Arabia, Kuwait and Iraq are shipped from Persian Gulf ports and pass via the easily-blocked Hormuz straits. The kingdom of Qatar, also a mediator in the Gaza conflict, lies entirely within the Persian Gulf and is one of the world’s largest exporters of liquefied natural gas.
A serious escalation puts all of these at risk. Higher prices of oil and gas affect consumers around the world, not just those importing oil from the conflict zone.
Anxiety over a strong Israeli response peaked on October 7, the first anniversary of the Hamas attack on Israel, when the price of crude oil shot up by over 10% to over $80 per barrel. It has since receded, somewhat. If the worst case does come about, the price of oil will shoot up well past $100 a barrel, triggering a global economic crisis. These fears have led Israel’s closest ally, the U.S., to call for a ‘proportional response’, i.e. one that doesn’t target Iran’s energy or nuclear infrastructure.[1] These calls may be partly motivated by a desire to keep petrol prices low just before the November 5 U.S. Presidential election.
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