The Iranian attack on Israel on April 13, 2024 sparked international reactions that varied between condemnation and warnings against further escalation and destabilisation in the Middle East. There are expectations that this attack will affect oil prices in the whole world because it would lead to an increase in tensions in the Middle East and thus an increase in prices, especially with the global position that Iran enjoys in the field of oil energy and its large reserves of crude oil.
The term “global energy security” is not new in international politics. Conflicts over global energy resources have been around for a long time and are still important for major countries. However, global energy has become one of the most important elements of world security, due to the limitations of non-renewable energy resources and the imbalance in their global distribution areas. In addition, the movement of oil prices is affected by events that are not directly related to supply, starting with geopolitical events, such as regional or geopolitical instability.
For a long time, global crude oil prices were captive to fears of a possible Iranian response. For example, the Iranian consulate headquarters in Damascus, Syria, amid different scenarios regarding the extent of the impact of that response by Tehran on the price levels of crude oil, responded with the likelihood of a possible retaliatory attack. This is in addition to concerns about the Israeli attack on the movement of crude oil,especially in the Hormuz Strait.
Therefore, it's important to ask: Will the recent escalation infighting be reflected in global oil markets? What is the importance of Iranian oil?
Iran's oil position
Iran has large reserves of crude oil. In terms of world ranking,Iran comes in third after Venezuela and Saudi Arabia among the OPEC countries, as Tehran holds a share of more than 14 percent of global production. Iran's total recoverable crude oil reserves are estimated to be about 157.8 billion barrels at the end of 2022. It also owns about 21 gas refineries and 10 oil refineries, and it has the technical capabilities that enables it to build other refineries.
Moreover, Tehran is narrowly circumventing the sanctions imposed by many Western countries. Although the destinations and quantities Iranian oil sales are not clear, Washington may disrupt oil sales and the transfer of its revenues to Iran if the Israeli- Gazan war reaches a boiling point and Iran closes the Strait of Hormuz. If this happens. not only will oil tankers in this region suffer but the entire Middle East will be greatly harmed.
Iranian oil production has increased by more than 700,000 barrels per day, recording its highest levels in five years at about 3.2 million barrels per day. Tehran has benefited from the decline in tensions with Washington and with the US administration, the latter turning a blind eye to Iranian oil exports..
Crude oil price movement and expected repercussions
Since the beginning of 2023, global oil markets have been unstable. Recent developments in the Middle East, specifically the repercussions of the war on Gaza, reflect a new path in the movement of oil prices and the global energy scene in general. This happened due to escalating fears and tensions in the Middle East
Before targeting the Iranian consulate in Damascus in early April, oil prices were hovering in a price range of about USD85 per barrel of oil for US West Texas Intermediate crude futures for May delivery, and about USD88.9 per barrel for Brent crude. In trading on the fifth of last April, Brent crude oil exceeded USD90 per barrel of oil for the first time since the middle of last year under the pressure of geopolitical developments taking place in the Middle East.
The Middle East contains about 75 percent of the world's crude oil reserves (high quality), and the importance of the region is an important focus in the crude oil industry because about 90 percent of the growth in oil supply will come from the area. The Middle East and North Africa (MENA) has about 57 percent of proven reserves of crude oil and about 41 percent of natural gas.
Accordingly,energy sources play a major role in the balance of power and regional and international interests in the Middle East, which creates a burning and stimulating field for competition over these sources, especially crude oil and natural gas.
Given the scope of the current conflict, although its impact is limited because there is no direct military intervention, it represents a direct threat to oil supply lines, or its main sources in the region. Therefore, oil markets are looking further ahead precisely because there are many concerns about the potential for the conflict to expand.
Photo: What is the importance of Iranian oil? (Adobe)