According to JPMorgan, US or Israeli military actions leading to a change in government for OPEC members will have a major impact on the global oil market. “If history serves as a guide, further destabilization in Iran could result in a significant rise in oil prices that will remain in place over the long term,” Natasha Kaneva, global product research director at JPMorgan, told clients in a memo released Wednesday. Pressure is on Iran’s top leader Ayatollah Ali Khamenei as President Donald Trump considers taking part in Israel’s air campaign against the Islamic Republic’s nuclear site. Trump called for Iran’s unconditional surrender on Tuesday, threatening Khamenei’s life in a social media post. Israel tried to assassinate Khamenei on the opening day of the military operation, but Trump refused to plan, US officials told NBC News. Changes in the “deep impact” regime in oil producers such as Iran “can have a profound impact” on the country’s oil policy, production and global prices in the short and long term, Kaneva said. Iran is the third largest producer in OPEC, exporting about 1.6 million barrels of crude oil per day. According to JPMorgan, eight major government changes have occurred in major oil producers since 1979, with gross prices increasing by about 76% compared to pre-crisis levels. The bank said oil prices have finally stabilized at around 30% higher than before the crisis. The supply losses “will be difficult to recover quickly and will further support prices as they rise,” Kaneva said. For example, oil prices surged dramatically in the wake of the Iranian revolution in 1979, defeating Shah Mohammad Reza Pallavi and bringing the Islamic Republic under Ayatollah Ruhola Khomeini. Iran’s crude oil exports had plummeted by January 1979 at 4.8 million barrels per day, according to JPMorgan. According to JPMorgan, OPEC compensated for some of the losses in supply from Iran, but prices still rose, more than doubled to $34 per barrel by mid-1980, causing a global economic recession. Today, Iran’s oil production is 3.3 MBD, well below what we saw before the 1979 revolution.” According to JP Morgan, with the exception of the 1973 Yom Kippur war, the oil shock in response to the conflict involving Israel is usually short-lived, with prices returning to fair value fairly quickly. The risk of Iran blocking the Strait of Hormuz is “very low,” according to the bank. The US Fifth Fleet is based from Iran in Bahrain, the Persian Gulf, and is tasked with protecting commercial transport, the bank said. About a fifth of the world’s oil passes through the narrow strait between Iran and Oman. In response to the current Iran-Israel conflict, the oil market has been relatively mild so far, with prices increasing by around 10% since the Israeli air campaign began last Friday.
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