Oil prices surged nearly 1% in the middle of the week following the rising jitters regarding the possibility of an Israeli military strike against Iranian nuclear facilities. The speculation has unleashed the menace of oil supply shocks on the already volatile Middle East energy pipeline.
Brent crude was up 97 cents, reaching $66.35 a barrel, and U.S. West Texas Intermediate jumped 96 cents to $62.99.
Sources familiar with international security trends reported that Israel is preparing to strike Iran nuclear facilities. No decision has been made so far, but the threat already sent waves through the energy markets. Any escalation would severely impact Iranian and regional producers' oil exports, experts said.
One of the major OPEC producers, Iran, exports roughly 1.5 million barrels per day. Such an attack on its facilities would cause major disruption. Iran would likely retaliate with the blocking of the Strait of Hormuz, a busy shipping route through which several Gulf nations, such as Saudia Arabia, Iraq, and the UAE, export oil.
Experts believe an all-out conflict would momentarily disrupt global supply lines for up to 500,000 barrels a day. While the OPEC countries may attempt to balance the market, the geopolitical threat would dominate. Any Iranian restriction on tanker movement would cause bottlenecks and, likely, increase global fuel prices further.
Latest figures show U.S. stocks for oil advancing in the recent week, providing some cushion for near-term supply concerns. Gasoline and distillate stocks, however, lowered, suggesting higher domestic use or lower refinery production. Such shifts suggest that the markets remain vulnerable to sharp changes in the balance of supplies.
Kazakhstan, too, lifted its output 2% in May, contrary to the earlier commitments in the global agreements for cutting supplies. The surprise increase complicates the task for OPEC+ in regulating supplies as uncertainty mounts.
As the investors and governments watch closely for developments, the breakdown in diplomatic talks between Iran and the West regarding its nuclear program only adds to the volatility.
With the Middle East tensions rising, energy markets expect prices to move increasingly higher. Using force in the region can have spillover effects far beyond regional limits, influencing global economic stability in turn.
