Investors should not ignore the risk that Iran could disrupt oil supply in the Middle East and cause a substantial price surge, energy analysts warned Monday, even if the market largely rejected the threat. Surprisingly, oil prices remained largely unchanged on Monday after the US bombed Iran’s major nuclear sites over the weekend. The market appears to think that Tehran will not target regional energy infrastructure in the Persian Gulf. But Barclays analysts warned that the worst-case scenario where Iran is trying to block the Strait of Hormuz is far from being put into the market today. The narrow waterway between Iran and Oman is an important choke point for the global oil market, with around 20 million barrels passing every day. “More than anything, we warn the knee jerk at this stage: ‘The worst is behind us’,” Helima Croft, head of global commodity strategy at RBC Capital Markets, told clients. Brent Surge Goldman Sachs estimates that if Global Benchmark Brent drops 50% in oil flowing through the channel for a month, then it will surge to $110 per barrel for a short time if oil shipments drop by 10% in the next 11 months. Oil prices will average to $95 per barrel in the fourth quarter, as the US and OPEC countries release more crude oil to the market, according to Goldman. Another investment bank, UBS, said Brent’s price could skyrocket north at $120 per barrel if the straits were closed. “In the case of the closure, we will see a very important disruption into the global oil market, which is greater than the recent loss of Russian supply in 2022,” UBS analysts told clients in a memo after Moscow’s invasion of Ukraine. Both Goldman and UBS believe Iran is unlikely to move to close the strait, given that it is being used to transport the Islamic Republic’s own crude exports. But Iran doesn’t need to perform any very complicated surgeries to cause the ship to avoid the straits right now, Croft said. The Joint Maritime Information Center urges vessels to remain vigilant when crossing the strait. “I don’t think it’s a ‘complete closure or nothing’ scenario when it comes to waterways,” Croft said. “Iran will deploy asymmetrical capabilities to raise the economic costs of U.S. and Israeli combined operations.” The ship threat has several ways to disrupt traffic in the channel, Danske Bank’s chief analyst Minna Kuusist told clients by targeting the vessels with drones or missiles, but the US Navy could mitigate that threat in a few days. According to analysts, if Tehran mines the straits or sinks the ship through the waterways, the chaos lasts for a long time. “If Iran declares that it has mined the channel, the insurance company will not allow the vessel to navigate from there,” Kuusist said. The US may be able to clean up enough mines to open safe corridors near the UAE coast in about a week, she said. “Even so, the insurance company may not be happy.” “It will take weeks for a wider mine removal,” Kuusist said. “The storage capacity of Gulf producers will reach maximum at some point and need to cut production,” the dance carenaist told clients that closing the channel is probably Iran’s last option, but “a hopeless era leads to hopeless action,” as it will trigger a strong military response. “If Supreme Leader Ali Khamenei feels he has nothing to lose anymore, he may choose to put it all in,” Kuusist said.
