Oil prices rose on Monday following the United States and Israel’s attacks on Iran this weekend, as some analysts predict they could soon reach more than $100 a barrel. With attacks on the region’s oil and gas infrastructure escalating and traffic halting in a key shipping lane, experts tell WIRED that how the White House handles the conflict in the coming week – as well as how Iran and other oil producers respond – will be key in determining how high prices ultimately rise.
Brent crude oil price he jumped to almost $80 a barrel – a nearly 13 percent raise over Friday’s prices – when markets opened on Sunday evening. The market has been pricing in the risk of an aggressive U.S. stance toward Iran for months, says Tyson Slocum, director of the energy program at the progressive think tank Public Citizen, protecting prices from an even steeper rise. But the United States’ disorganized actions after the initial attack that killed Ayatollah Ali Khamenei, Iran’s supreme leader, introduce much more uncertainty.
“For all Trump said, ‘Hey, you know, we eliminated Khamenei, we knew exactly where he was’ — we clearly didn’t do the same with the possibility of an Iran attack,” Slocum says. “It seems our plan was to eliminate Khamenei and then hope for the best.”
Iran controls the Strait of Hormuz, one of the world’s most significant shipping lanes. One in five barrels of oil flows through the strait. Major members of the Organization of the Petroleum Exporting Countries (OPEC), the world’s dominant oil and gas cartel, export their products from the region almost exclusively through the strait.
“As long as I’ve been in the oil market, Iran and the closure of the Strait of Hormuz have been sort of the ultimate risk scenario for prices,” says Canadian oil researcher Rory Johnston. Normally, he believes, OPEC would respond to an international oil crisis by increasing oil production. “But if OPEC’s emergency production is on the other side of the problem area, it doesn’t do much good.” Johnston compares this region to a garden hose, where a kink in one section can reduce efficiency.
Throughout the weekend, as Iranian officials sent mixed messages on whether the strait was formally closed, traffic in the strait dropped to almost zero. Insurance companies do tweaked politics on ships passing through the strait, and some ships were hit by drone attacks. Johnston says what appears to be taking place is more of a “voluntary closure” than an official closure.
There are worse oil price scenarios that could come true in the coming days than just closing the strait. In September 2019, drones struck major oil production facilities east of the Saudi capital, Riyadh. Although the Houthi rebel movement in Yemen publicly claimed responsibility for the attack, U.S. officials blamed Iran. Momentary attack sent oil prices skyrocketing 15 percent.
Saudi officials on Monday he said that in the wake of the drone attacks, they closed a vast domestic refinery and several other oil and gas fields in the region were also closed. Qatar LNG, the state-owned producer of liquefied natural gas, said on Monday that it was production stoppage due to drone attacks, which caused a piercing raise in gas prices in Europe. Johnston says such sustained, major strikes can have a huge impact on prices.
“Back to the garden hose… [that would be] more like taking a gun and turning on a tap,” says Johnston.
Clayton Seigle, a senior fellow at the Center for Strategic and International Studies, a Washington-based think tank, agrees. “The more desperate Iran becomes, the more likely it is to use energy as leverage to advance its interests,” he says. “If tankers abandon the Gulf trade en masse, and certainly if major oil infrastructure is destroyed, we will likely see triple-digit oil prices again.”