Mideast’s Rising War Risk Puts Spotlight on Iran’s Quiet Oil Comeback
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(Bloomberg) -- Iran’s oil production has defied years of US sanctions to return to almost full capacity — a tide of supply that looks increasingly vulnerable as tensions with Israel flare.
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The Islamic republic’s output has climbed by a third in the past two years to reach 3.4 million barrels a day, as cut-price supplies attracted Chinese buyers, according to data compiled by Bloomberg. It’s just a few hundred thousand barrels a day short of the levels pumped before then-president Donald Trump re-imposed sanctions in 2018.
Extra Iranian barrels have been able to enter the market — helping to moderate world crude prices — with the tacit approval of US President Joe Biden’s administration. Even as tensions between Tehran and Tel Aviv have reached unprecedented levels, in an election year the White House has prioritized taming gasoline costs over tougher enforcement of sanctions.
The current military escalation threatens these supplies.
“Iran is having success exporting thanks to a willing customer in China, the increased sophistication of illicit transportation channels, and the relatively low interest in the US to take action,” said Henning Gloystein and Greg Brew, analysts at Eurasia Group. “There’s a risk that Israel strikes Iranian oil facilities.”
Eurasia group doesn’t think Iran’s oil infrastructure would be Tel Aviv’s top target, but even the possibility has spooked markets. Crude jumped 5% on Thursday after Biden said the US was discussing whether to support such an attack by Israel. West Texas Intermediate futures rose a further 1.5% to $74.81 a barrel as of 7:49 a.m. in New York.
Iran and Israel have long been bitter enemies, but have come increasingly into direct conflict in recent months. In Lebanon, Israeli forces have been battering key Iranian proxy Hezbollah, assassinating its leader Hassan Nasrallah. In response, Tehran launched a large missile strike against Israel this week.
The Biden administration is still in talks with Israel about the country’s response to these attacks, and believes that no decision has been taken yet, a US official said on Thursday. Pentagon deputy spokeswoman Sabrina Singh said talks between the US and Israel are “more about trying to understand what their response might be.”
Hitting the oil industry would do Iran great economic damage, either by targeting refineries that process domestic fuel supplies, or export facilities that provide vital revenue. There are reasons that Israel may be reluctant to do the latter. Such a move would upset Tel Aviv’s partners, including the US, the European Union and Gulf states, ANZ Group Holdings analysts Daniel Hynes and Soni Kumari said in a report.