Iran-Israel conflict: Concern about the world's most important oil vein

Following the major Israeli attack on Iran on Friday night, oil prices rose sharply. The price of a barrel (159 liters) of North Sea Brent crude for delivery in August climbed by as much as 13 percent to $78.50, the highest level since January. During trading, the Brent price gave up some of its gains but still rose by $6.28 to $75.64.

The price of a barrel of US WTI crude for delivery in July also rose by just over 9 percent, or $6.42, to $74.45. At one point, the increase had been as high as 14 percent.

Michael Alfaro , chief investment officer at Gallo Partners, a hedge fund specializing in energy and industrials, said the attack on Iran's nuclear facilities represented a "seismic escalation" of the conflict. "We are facing a protracted conflict that will almost certainly drive up oil prices," he told the Financial Times .

There's a key reason for the market reaction: The world is still dependent on Arab oil. The member countries of the Organization of the Petroleum Exporting Countries (OPEC) supply 60 percent of all globally traded oil . Economists therefore fear an escalation of the conflict in the Middle East.

"In response to the attacks from Israel, Iran could not only attack Israel, but also blockade the Strait of Hormuz, through which 20 percent of global oil is transported, or attack oil facilities in Saudi Arabia," warns chief economist Cyrus de la Rubia of Hamburg Commercial Bank. In such a scenario, oil prices could rise to $100 per barrel, says de la Rubia. "In any case, higher oil prices mean that higher inflationary pressures will return."

Leon Ferdinand Bost of Metzler Bank said that the majority of Iran's 1.6 million barrels per day of oil exports go to China. The global oil market could probably absorb this shortfall for the time being. Like de la Rubia, he sees the greater danger in a possible closure of the Strait of Hormuz.

The dependence on liquefied natural gas (LNG) is even more serious – around 25 percent of global supply flows pass through the strait. Qatar, for example, one of the world's largest exporters of liquefied natural gas, sends almost all of its LNG through the strait.

In the event of a disruption of the trade route, OPEC reserve capacities, held primarily by Saudi Arabia and the United Arab Emirates (UAE), would also be virtually useless.

About one-third of the world's oil is transported by sea through the Strait of Hormuz, a narrow waterway separating Iran from the Gulf states. The strait is 33 km wide at its narrowest point, with the shipping channel only 3 km wide in either direction. OPEC members Saudi Arabia, Iran, the United Arab Emirates, Kuwait, and Iraq export most of their crude oil through the strait—mainly to Asia.

Iran has repeatedly threatened to block the road in the event of an attack. Some of the world's largest oil fields, including those in Saudi Arabia and Iraq, are also within range of Iranian missiles and drones. In 2019, Iran was blamed for an attack on Saudi Arabian oil facilities that briefly boosted crude oil prices.

Whether this threat should actually be taken seriously and whether Iran would even be capable of doing so militarily will become clear in the coming days, says Bost. A disruption or disruption of trade flows would, according to the expert, "lead to a further massive increase in oil prices" and "poses a significant risk to the currently favorable inflation trend in the US and Europe."