Oil supplies from the Middle East face increasing risk as the conflict between Israel and Iran drags on, according to RBC Capital Markets, which warned that energy is now “clearly in the crosshairs.”
“The fact that both sides targeted energy infrastructure on the second day of fighting represents a clear cause for concern,” analysts including Helima Croft said in a note, citing attacks that included gas facilities. Among possible scenarios, Israel may opt to strike Tehran’s Kharg Island hub to curb crude flows, while Iranian proxies may hit facilities in Iraq, they said.
“The White House has probably sought to dissuade Prime Minister Netanyahu from a Kharg Island strike, given that it could remove 90% of Iranian oil exports,” they said, referring to the Israeli leader. “However, the longer this conflict continues, the odds increase that Israel could seek to curtail the funds that Iran would need to reconstitute its nuclear program.”
The oil market has been rocked by Israel’s drive to cripple Tehran’s nuclear program and hit its military and scientific leadership with attacks that began last week. Global benchmark Brent spiked by the most the in three years on Friday, before trading slightly higher at the start of this week. The crisis has prompted banks to examine a large range of possible outcomes, including potential for disruptions to oil flows through the Strait of Hormuz.
“If regime change does become the central Israeli war aim, we do not think the Iranian leadership will prioritize keeping crude supplies steady,” the RBC analysts said. Still, “we think ‘closure of the Strait’ has emerged as something of a market straw man scenario” in recent trading, they added.
