Goldman Sachs has given a grim warning: crude oil prices could skyrocket up to $20 a barrel, depending on the actual effect on Iranian oil production.
U.S. crude futures soared around 5% on Thursday, and tacked on more gains on Friday amid growing fears that Israel will attack Iran’s oil industry in response to a missile strike from Tehran earlier in the week.
Daan Struyven, global commodities research co head at Goldman Sachs, estimated that if Iranian production remains 1 million barrels a day lower, the resulting supply shock could trigger an oil price spike of around $20 more per barrel next year. Of course, assuming that the OPEC+ coalition doesn’t offset the decline by raising output.
But if major OPEC+ players like Saudi Arabia and the UAE step in to make up the production shortfall, this price increase could be cushioned below $10 per barrel, added Struyven.
Since the outbreak of hostilities in the Israel-Hamas conflict on Oct. 7 last year, the oil market has largely responded neutrally because price gains have been cushioned by higher U.S. production and weak demand from China. But a shift in market sentiment in recent days appears to be taking hold. In the wake of Iran’s firing a missile at Israel, U.S. crude oil prices jumped for three days straight, enough to unsettle industry analysts who have worried about supply disruptions.
Iran is a powerful OPEC member and a giant in the world oil supply, with a production of almost four million barrels per day. As analysts said, up to 4 percent of the world’s oil supply might be in jeopardy in case Israel retaliates by attacking Iran’s oil infrastructure.
Kharg Island, which accounts for 90% of Iranian crude exports, is ‘inherently vulnerable,’ according to MST Marquee’s senior energy analyst, Saul Kavonic, implying that it would naturally be a focal point in the current tensions.
There is a growing feeling that this might be the spark that leads to an escalation of conflict that would seriously impact transit through the Strait of Hormuz, a key water route that handles much of global oil supply. Analysts say an attack of this nature by Israel against Iranian oil infrastructure would likely cause severe supply disruptions in this critical area.
Iran has in the past threatened to close the Strait of Hormuz to oil exports if its industry is damaged. The sea channel between Oman and Iran is a vital passageway because 20% of the world’s daily crude production flows through it, according to the U.S. Energy Information Administration. “The Strait is a critical chokepoint that connects Middle East crude oil exporters with major markets around the world”.
Pressed by reporters on Thursday about any U.S. backing of an Israeli attack on Iranian oil refineries, President Joe Biden responded, “I think that would be a little anyway.” Crude oil analysts said that was enough to send oil prices higher for the day.
The White House has been asked by CNBC to comment on the president’s remarks.
BMI of Fitch Solutions said in a report Wednesday that in case of an all-out war, Brent crude could surge above $100 per barrel. In the event of disruptions in the strait, it could surge to $150 or higher, it said. While full scale war is “relatively unlikely,” analysts at BMI warn the potential for miscalculations on either side has risen.
Some analysts in the industry think that OPEC+ could balance any disruptions in Iranian exports, in case Israel attacked its oil infrastructure, by using spare capacity. They also said, however, that the spare capacity of the world is highly concentrated in the Middle East, among the Gulf states that might get jeopardized once the situation starts escalating in this area.
