The threat of a full-scale war in the Middle East has intensified following Iran’s large missile strike on Israel on October 1. This attack has raised fears of disruptions to the oil and gas supply from this energy-rich region.
Since the missile attack, global oil prices have surged by 9 percent. This escalation occurred amid Israel’s ongoing conflict in the Gaza Strip and its recent military action in southern Lebanon.
Experts warn that a major conflict between Israel and Iran could severely disrupt international energy supplies and create significant economic repercussions worldwide. Farzan Sabet, a senior research associate at the Geneva Graduate Institute, stated, “A major disruption of regional oil and gas exports is likely to have a substantial impact on the global economy.”
Potential Israeli Retaliation
Israeli media reports suggest that Israel may target Iran’s nuclear sites or its oil and gas infrastructure. U.S. President Joe Biden has advised Israel against attacking Iran’s oil facilities, one of the world’s largest producers. Iran has warned that any assault on its infrastructure would “provoke an even stronger response” from the Iranian government.
If Israel conducts a significant attack on Iran’s energy infrastructure, Tehran may retaliate by pressuring critical transit points such as the Strait of Hormuz. This strait is vital as it handles about one-fifth of the world’s oil supply. Neil Quilliam, an expert in energy policy and geopolitics at London’s Chatham House think tank, emphasized, “The Strait of Hormuz is crucial to the global economy.” Qatar, a leading producer of natural gas, also relies on this strait for its exports.
Concerns are rising that Iran could target oil facilities in neighboring countries if Israel strikes first. Major oil-producing nations like Iraq, Kuwait, the United Arab Emirates, and Saudi Arabia could be affected.
During a recent visit to Qatar, Iranian President Masud Pezeshkian met with senior officials from Gulf Arab states. These officials attempted to reassure Iran of their neutrality in the escalating conflict with Israel.
According to Sabet, any Iranian retaliation that affects global energy prices or trade would be seen as “an act of aggression” and could lead to increased pressure on Iran. Quilliam noted that Israel is likely to focus on targets that would “weaken the Iranian regime and impact its economy,” rather than specifically targeting global oil markets.
Historical Context and Future Implications
In the past, significant energy price spikes have followed events like the Arab oil embargo in 1973 and the Islamic Revolution in Iran in 1979. These crises resulted in gas shortages and long lines at fuel stations in many countries.
Despite potential disruptions in oil and gas supplies from the Middle East due to an Israel-Iran conflict, experts believe that the global economy is less likely to suffer a severe downturn. This is primarily due to the U.S. emerging as a major oil and gas supplier and the decreasing reliance on fossil fuels globally.
Sabet stated, “Western consumers will notice the price increase at the pump, but it will be much less than in previous eras.” He pointed out that warnings about disruptions to commercial shipping in the Red Sea by Iran-backed Huthi rebels in Yemen have not caused significant inflation in the West.
However, he warned that any major disruption in oil and gas supply from the Middle East could have a substantial impact on the Chinese economy. China imports approximately 1.5 million barrels of oil daily from Iran, making up 15 percent of its total oil imports from the region.
Increased energy prices for China could “filter through the supply chain to the manufactured goods that the country exports to the United States, Europe, and elsewhere,” leading to “more inflation for consumers,” Sabet added.
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