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The writer is oil market analyst and founder of Base Research
Most traders seem to have bet on only a modest probability of major oil market disruptions if war broke out in Iran. Even as tensions ratcheted up recently, the Brent crude benchmark averaged less than $70 in February. Despite a strong build-up of bullish speculative positions taken in the futures markets, that was well below the average price of $80 in real terms over the past ten years.
But those assumptions are about to be tested. During the 12-day war between Israel and Iran in June 2025, Brent prices briefly spiked above $80, before returning to prewar levels within two weeks. But that was an extremely short conflict with limited aims.
The current war is very different and has already escalated, with Iranian strikes on US allies around the region. Washington has made regime change an explicit objective. And following the killing of Iran’s supreme leader, the conflict has entered a much more unpredictable and dangerous phase.
Oil wells are too dispersed to make good military targets but processing centres and loading terminals for tankers are much more vulnerable. Saudi Arabia’s giant processing centre at Abqaiq and export terminal at Ras Tanura as well as Iran’s loading terminal at Kharg Island all handle millions of barrels per day. They are all well defended but still vulnerable.
Iran’s crude exports of under 2mn barrels per day (b/d) account for less than 2 per cent of global oil supplies, so their loss would be manageable in the short term. Other Opec members are estimated to hold spare capacity of more than 3mn b/d, which could be used to replace lost exports from Iran. And the cartel said on Sunday that it planned to increase April production by 206,000 barrels a day. But nearly all Opec’s spare capacity is in other countries around the Gulf, so vulnerable in the event of any further escalation.
The biggest risk stems from a prolonged interruption of tanker traffic through the Strait of Hormuz, which handles about 20 per cent of world supply. Saudi Arabia can reroute some but not all of its exports from the Gulf to the Red Sea using the East-West pipeline across the Arabian peninsula. The UAE can also bypass the Strait for some exports by utilising the Habshan-Fujairah pipeline to the Gulf of Oman. But the Strait handles all the seaborne exports from Iraq, Kuwait and the smaller Gulf producers.
During the Iran-Iraq War in the 1980s, both countries used mines and fast attack craft to hit tankers in the Gulf, prompting the US and other western countries to protect tankers with a convoying system. Since then, Iran has deployed anti-ship missile batteries along the shore and regularly practised intercepting vessels in the narrow waterway using swarms of fast boats.
Most analysts agree it is unlikely Iran could force a total and prolonged closure given the air power and naval superiority of the US and its Gulf partners, but partial closure might still be disruptive. Even without a formal closure, tanker owners, operators and their insurers may reduce the number of transits or avoid the Strait altogether until passage is safer, which would have much the same practical impact.
Oil traders and investors have been counting on alternative sources of supply in the event of a disruption of Gulf exports. Since the second quarter of 2025, the global market has been oversupplied by 2mn to 3mn b/d. This would provide a buffer to absorb a temporary loss of output from Iran or interrupted flows through the Strait. In addition, the US and other OECD countries have 4bn barrels of crude and refined products in storage, including 1.2bn barrels held as emergency reserves.
If the conflict escalates and disrupts Gulf exports for any length of time, governments may consider a release of those reserves to protect motorists from sharp price increases and to buy time to bring the war to a conclusion.
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: ft.com
