WHY THE OIL MARKET FEARS A PRICE SHOCK IN THE EVENT OF AN ATTACK ON IRAN - Filenews 25/2
By Ed Hirs
President Trump is considering a direct attack on Iran. Oil markets began to appreciate the impact of such an attack a few weeks ago, when the president ordered the aircraft carrier USS Gerald R. Ford to go to the Mediterranean Sea, where it will join the aircraft carrier USS Abraham Lincoln in the Middle East. An attack on Iran risks far greater disruption to the oil market than the fall of Maduro in Venezuela.
The oil market is very inelastic in terms of prices. According to an analysis of data from the Yale Graduates Energy Study Group, for every 1% that the amount of crude production decreases, the price of "black gold" will increase by 20% to 25% per barrel. The attack on Venezuela did not disrupt the country's oil production and had little effect on prices worldwide. Iran is a different case.
Iran produced about 3.2 million. barrels of oil per day in December. Of these, about 1 million. barrels were exports. The global oil market needs about 106 million. barrels per day. The possible interruption of Iranian oil exports seems to have already been factored into today's oil price, at the level of $66. the barrel for US crude, which has risen in recent weeks.
The biggest threat is if the conflict leads to a partial or total blockade of the Strait of Hormuz. 18-20 million people pass through the area. barrels per day and there are no alternative routes to the world market for most of this quantity. If half of the quantity goes out of the market, the price of oil could even skyrocket above $125 per barrel. China and the US could draw on their strategic oil reserves to compensate for the loss in the market, but both countries together do not have the capacity to pump 10 million barrels. barrels per day.
Higher fuel prices would immediately hit both the American and global economies. Domestic gasoline prices would double. And the impact would be seen even in the primaries now being held in the United States in view of the midterms.
