Oil prices could spike to as high as US$100 a barrel if Iran escalates regional tensions by targeting shipping in the Strait of Hormuz, analysts at consultancy Wood Mackenzie said. They view such a move as unlikely. However, the U.S. attack on Iran last night alters the dynamic of the conflict.
In a mid-June opinion, Wood Mackenzie’s analysts said Israel’s attack on Iranian nuclear and military targets on June 13 had injected a geopolitical risk premium of US$5 to US$7 per barrel into the oil market, pushing Brent crude to around US$74-$75 a barrel by June 16. The price further edged close to US$79 in recent days. But unless Iran responds with a sharp escalation, prices were expected to ease in the coming weeks.
“The key current risk in the market is if Iran decides to conduct an attack on shipping in the Gulf or Strait of Hormuz,” the analysts said, warning that such a disruption could affect nearly 20% of global oil supply and drive Brent to between US$90 and US$100 a barrel.
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The Strait of Hormuz is a critical chokepoint for global energy flows, with nearly 20% of the world’s crude oil supply passing through it. Wood Mackenzie said a disruption there would have a severe impact on global markets, forcing prices sharply higher as traders react to fears of a major supply shock.
Iran’s response to Israel’s June 13 attack has involved large-scale missile and drone strikes over several days, many of which were intercepted, but some caused civilian casualties and damage in major Israeli cities. Wood Mackenzie said the market had largely priced in Iran’s retaliation and projected a near-term softening of prices as fears subside.
The analysts say the current risk premium could fall by a barrel in the absence of further Iranian action, with Brent potentially averaging around US$70-$71 in July.
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The consultancy had noted that any direct Iranian action against shipping would likely trigger a U.S. military response and risk damaging Iran’s recently improved ties with regional powers such as Saudi Arabia. On this basis, WoodMac had assessed the likelihood of such escalation as low.
The U.S., however, has since launched strikes on Iranian targets, characterizing them as limited and in pursuit of peace. This adds a complicating stimulus to the potential for further escalation, which is expected to be a key concern for oil markets.
