Goldman Sachs warns that crude oil prices could soar by $20 per barrel, if Iranian oil production is affected by Israeli retaliation due to increased regional tensions.
US crude futures jumped 5% on Friday due to fears that Israel could strike Iran’s oil industry.
This comes after a recent Iranian missile attack, which intensified the conflict in the area and raised alarms over potential disruptions of global oil supplies.
“If you saw a sustained drop of 1 million barrels a day in Iranian production, this could lead to an increase in oil prices of around $20 per barrel next year,” said Daan Struyven. He was speaking on CNBC’s ‘SquawkBox Asia’.
This projection assumes the oil cartel OPEC+ will not increase production to offset any losses.
OPEC+ can mitigate the surge
Struyven said that if Saudi Arabia and the UAE decide to increase production, oil prices could be moderated.
In this scenario, an increase of $10 per barrel could be more likely, which would reduce the impact.
Since the beginning of the Israel-Hamas war in October last year, the oil markets have seen only limited disruptions.
The recent Iranian missile strike against Israel has caused some to fear a wider supply shock.
Iran’s oil exports: global impact
Iran is a major player in the global oil industry, producing almost 4 million barrels per day.
As tensions rise, the world may lose access to 4% of its oil if Israel targets Iran’s infrastructure.
The market analysts are concerned about this scenario.
Saul Kavonic is a senior energy analyst with MST Marquee. He warned that Iran’s Kharg Island could be targeted. The island handles 90% of the country’s crude oil exports.
“The bigger concern is if this leads to a larger conflict that impacts transit through Strait of Hormuz,” said he on CNBC.
Strait of Hormuz – a critical oil chokepoint
The Strait of Hormuz, a vital waterway connecting Oman and Iran where 20% of the world’s oil is transported each day, is a strategic waterway.
Iran has threatened to block this vital channel in response to attacks against its oil sector.
The global energy market would be affected if the flow of oil was disrupted through this narrow strait.
When asked about possible US support for an Israeli attack on Iran’s oil installations, President Joe Biden responded ambiguously and left the door open for further escalated.
Potential for a full scale conflict
According to Fitch Solutions BMI, a full scale war in the area could push Brent crude oil prices above $100 per barrel, with disruptions along the Strait of Hormuz possibly driving prices as high as $150 per barrel.
The likelihood of a war is low, but the risk of a miscalculation has increased, leaving the oil market vulnerable to future shocks.
Although some believe OPEC+ can fill the gap if Iran’s production is lost, most of the world’s spare capacity is located in the Gulf region. This region could be at risk if this conflict escalates.
This post Oil Prices Could Surge by $20 As Tensions in Iran Escalate, Warns Goldman Sachs could be modified as new developments unfold
