Oil prices could reach $200 per barrel if tensions in the Middle East continue to rise.
Oil prices could rally to $200 a barrel if the conflict between Israel and Iran escalates, an oil analyst said during an interview with CNBC. Iran launched its second direct attack against Israel earlier this week, with Tel Aviv pledging a serious and ready response.
On Tuesday, Iran launched hundreds of ballistic missiles and drones to Israel. Tel Aviv’s advanced defense system dubbed the “Iron Dome” protected Israeli civilian lives, although some missiles hit their targets causing some destruction. A Palestinian man was killed as a result of the attack.
Iran’s strike, the second this year, was in retaliation for Israel’s killing of Hassan Nasrallah, the chief of the Lebanese military group Hezbollah, a close ally of Teheran. Following Nasrallah’s death, Israel also engaged in a ground invasion against Lebanon, attacking some Hezbollah targets along the southern border and Beirut.
Teheran launched a similar strike in April, though 99% of those missiles were destroyed by the Iron Dome while still in the air.
Israel’s Prime Minister Benjamin Netanyahu pledged a strong response against Iran for this second strike. US President Joe Biden said they were “discussing” strikes against Iran’s energy facilities, including its oil production centers.
Destroying Iran’s oil infrastructure could create a ripple effect across the global economy. Iran is the world’s 9th largest oil producer and is a member of the Organization of Petroleum Exporting Countries (OPEC).
Furthermore, most of Iran’s oil exports pass through the narrow Hormuz Strait before going out into the world’s oceans. Any oil shipment passing through Hormuz could be easily targeted by advanced weaponry.
“If ... you really took out the oil installations in Iran, forced down the exports by 2 million barrels, then the next question in the market will be what will happen now in the Strait of Hormuz? That, of course, would add a significant risk premium to oil,” Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB, told CNBC.
“If you take out installations in Iran, easily you go to $200-plus,” he added.
Oil prices have remained relatively stable in the past 5 years despite all the geopolitical tensions. However, prices started spiraling upward after Iran’s strike on Tuesday. On Thursday, Brent prices increased by 5.14% to $77.70 per barrel, while the West Texas Intermediate jumped 5.25% to $73.76.
Prices could remain low if China’s oil demand remains weak, as it has for the past years. The United States also pumped up its oil production, lowering global prices as a result.
Still, rising tensions in the Middle East could undo 5 years of oil price stability, causing a new inflationary spike.
