Attacks between Israel and Iran have escalated dangerously in the last 24 hours, following the Tel Aviv strike on the Islamic Republic's military and nuclear facilities. Since Friday, calls for restraint have been made by the United Nations, the United States, the United Kingdom and the European Union, to no avail.
The conflicts have so far been limited to the two warring countries. However, the level of severity of the strikes has raised the worrying prospect of a wider conflict in a region that is a key oil exporter.
On Friday, Israeli strikes targeted facilities in Arak and Isfahan, the uranium enrichment plant in Natanz and targets in Tehran. In retaliation, Iran launched ballistic missile attacks against Israel.
Talks between the U.S. and Iran on Tehran's nuclear program, which has threatened to attack U.S., U.K. and French military bases and ships in the region if those states help Israel repel attacks against it, were also cancelled.
Iran's oil and gas infrastructure has not been critically affected by Israel. However, given the unpredictable situation that is developing in the region, nothing is excluded. On Saturday, Israel struck the Shahran oil depot in Tehran, after attacks on Iranian gas fields had been carried out.
If Iran's energy infrastructure is damaged and the Islamic Republic retaliates to disrupt the regional energy supply chain or drag the U.S. into the conflict, there could be serious consequences for the oil market.
What are the five worst scenarios in an unpredictable and rapidly escalating Israel-Iran conflict?
Israel hits Kharg oil terminal
Israel can attack the Kharg oil terminal, on the island of the same name, 15 miles off Iran's northwest coast. The terminal handles over 90% of Iran's crude exports around the world.
If an attack knocks out the terminal, a domino effect is expected. Among other things, Iran's exports to China – the world's largest oil importer – are expected to be affected.
Therefore, it would not only price oil in the short term, but also its futures contracts over a horizon of 4-6 months. Since the return of the terminal to normal operation would be neither easy nor fast.
Israel Strikes Iran's Domestic Supply Chain
Israel could attack Iran's domestic energy supply chain. The strike on the Shahran oil depot in Tehran on Saturday increases the chances for this scenario.
A more upgraded Israeli plan could target a complex of oil terminals and hubs in southern Iran's Hormozgan province. There are also two free trade zones in the region, on the islands of Kish and Qeshm. Kish is also home to the Iranian Oil Exchange – the only exchange of its kind that does not trade oil and its derivatives in U.S. dollars.
The Abadan refinery, located across the Sat Al-Arab River, on the Iraq-Iran border, is another potential target for Israel. There is no reliable data on the refinery's production capacity. However, according to estimates and sources of regional media (e.g. Financial Tribune), it can produce about 400,000 barrels per day.
Abadan also has symbolic significance as Iran's oldest oil processing facility. It was built in 1909 by the Anglo-Persian oil company (which later became BP) and covers about 25% of Iran's domestic fuel demand. A halt to production at the refinery could be catastrophic for both Iranian consumers and the country's military.
The Mahshahr oil terminal, in the Khor Musa Canal, is a similar target. Petroleum products from the Abadan refinery are stored there. If hit, Iran's domestic supply chain will be paralyzed and Tehran may be forced to redirect its energy resources.
Israel "paralyzes" Iranian gas industry
Instead of striking at oil production and export facilities, Israel can "paralyze" Iran's gas industry. Iran produces more than 270 billion cubic meters of natural gas annually, almost entirely for domestic use.
Israel has already attacked two Iranian gas fields, including one of the four units of the South Pars field's Phase 14 platform. These attacks could be a harbinger of what is to come. Such targets would have little impact on the global gas industry, although Iran shares the gas basin with Qatar.
However, Iran's gas production volume is equivalent to just over 6% of global production. Domestic disruptions in gas production may force Tehran to turn to alternative LNG supplies to meet its needs, which may prove difficult in the face of Western sanctions on Tehran.
Iran closes Strait of Hormuz
In retaliation, many wonder if Iran could close the Strait of Hormuz: the main sea route for transporting oil and LNG from the Persian Gulf to the Gulf of Oman.
The volume of loads passing through also reflects the importance of such a movement. Iran's cargoes, as well as crude cargoes from Saudi Arabia, Kuwait, Iraq and partly the United Arab Emirates – which account for about 30 percent of the world's oil – as well as Qatar's LNG cargoes pass through the Strait of Hormuz daily.
Although the Iranians have the ability to close the Straits, it is likely that they will not do so, even if the country's "younger" political voices ask for it. The first consequence of this move would be to stop the shipment of Iranian oil.
In addition, retaliation would likely follow at the U.S.-led global level, with Iran's coastline and all its ports exposed to any attack by the U.S. Air Force and Navy. It should be noted that neighbouring Bahrain is home to the Fifth Fleet of the U.S. Navy.
Any disruption in the supply chain would have negative consequences for Iran's No. 1 oil buyer: China. In 2024, Iran exported an average of 1.65 million tonnes. barrels per day in China. In addition, almost 50% of crude oil passes through the Straits – whether it is Iranian or not. Specifically, about 20.5 million barrels of oil per day are headed to China. A possible blockade of the Straits would not last long, as Beijing would be pushing to open the sea route for oil.
Iran Attacks Gulf Military Bases and Oil Facilities
In an effort to drag the U.S. into the conflict, Iran can either directly or through its regional proxies in Iraq, Yemen, Lebanon, the West Bank, and Gaza, attack the energy infrastructure of neighboring Gulf states.
There is precedent, as in the past Iran has been accused of targeting Saudi Arabia's oil fields (2019) and attacking the United Arab Emirates (2022). While the tactic of direct attacks remains open for Iran, the regional proxies, Hamas and Hezbollah, are currently weakened by Israeli strikes against them.
Of course, the Houthi rebels in Yemen may be able to escalate their attacks on merchant shipping, oil and gas cargoes in the Red Sea – a tactic they began implementing in 2023.
On Saturday, Iranian officials warned that the country would attack U.S., U.K. and French military bases in the region if they were deemed to be aiding Israel against Tehran. All three states maintain Special Forces units and large diplomatic missions in Gulf countries.
Such a scenario is being considered in intelligence circles, with U.S. regional forces closely monitoring the situation and the U.K. opting to send more military aircraft to its bases "for emergency support throughout the region."
Any such escalation is likely to trigger a broader regional war, while a prolonged disruption to oil shipments is likely to drag China into a diplomatic stalemate as well.
If one or more of the above scenarios, especially an attack on Iran's Kharg terminal, materialize, then the consequences for global oil and gas markets could be very serious.
