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Analysts say a direct attack on Iranian oil refineries or larger unrest in the region would potentially affect shipping routes in the Straight of Hormuz.
The market has been able to absorb concerns about past events. Kit Haines, a global crude analyst at Energy Aspects, said that fears about supply issues related to sanctions after Russia’s invasion of Ukraine or the 2019 drone attack on Saudi Arabia’s Abqaiq oil largely did not match the actual realities.
Still, Haines said that this time, the concern is about broader potential unrest in the region.
“This time around, I think people are seriously worried,” he said, explaining that “we have seen things go off in the Middle East before, but actually, there is a pretty sizeable potential here that it could impact supply. It’s not necessarily about what any Israeli response will do, I think it is the secondary effects of that.
Israel has vowed to retaliate after Iran’s massive attack earlier this week
Iran launched over 180 ballistic missiles on Israel on Tuesday, likely the largest such attack in history, in response to Israel’s killing Hezbollah leader Hassan Nasrallah last week and Hamas political leader Ismail Haniyeh in July. Iran’s targets were apparently mostly military and government installations, some of which are near or in densely populated central Israel.
Israel, with help from US forces in the region, said it largely intercepted the attack, with the Biden administration saying that the strike was “defeated and ineffective.” Although much is still unclear about the impact of the attack, some satellite imagery has shown Iranian missiles did hit Israeli military targets. Israeli Prime Minister Benjamin Netanyahu has vowed to retaliate with US support.
“The regime of Iran does not understand our determination to defend ourselves,” Netanyahu said, adding that “they will understand. We will stand by the rule we established: Whoever attacks, we will attack them.”
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The risk of the conflict expanding is high. Nicholas Carl, the researcher manager of the American Enterprise Institute’s Critical Threats Project who focuses on Iran, explained to Business Insider that “throughout this entire series of events,” there’s been “extraordinary risk of miscalculations” for both sides.
If the US did support striking oil facilities, it would come at odds with Washington’s stance on Ukraine doing the same thing to Russia. Earlier this year, the US urged Ukraine to cease its attacks on Russia’s energy infrastructure, warning its drone strikes could drive up global oil prices and provoke retaliation.
At the time, Ukraine was using long-range attack drones to strike various Russian oil refineries, terminals, storage facilities, and depots, intending to hurt its production capacity. Russia is one of the world’s largest energy exporters, although the US and its allies have imposed hefty sanctions on its industries.
Washington’s concerns came just as Biden began pushing his reelection campaign and before his historic dropout.
“US policymakers and politicians are more dedicated to Israel’s security (and to showcasing this dedication) than they are to Ukraine’s,” Seigle said. Publicly, they’re less likely to rein Israel in from those ambitions. Privately, though, Biden officials are “surely very concerned” about the impact of such a strike,” he added.
Israel and Iran hold “more potential to disrupt global markets and send prices surging than does the Russia-Ukraine war,” Seigle said.
Few things are watched more closely than gas prices ahead of an election
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If Israel does target Iran’s oil industry, the 2024 presidential election could be rocked by rising oil prices ahead of the majority of the voting.
Oil prices had notably been trending downwards in the months prior to Iran’s ballistic missile attack on Israel. Back in September, global oil prices fell to the lowest level in almost three years, and the US has seen a historic year of oil production.
But if prices at the pump were to soar in response to upheavals abroad amid domestic concerns about issues like inflation, it could be a problem, as it has been historically. That said, the impact of changes like these has begun to lessen in this hyperpartisan era. It is increasingly less likely for a president’s approval rating to swing dramatically.
As of Friday, the national average was at $3.17 a gallon, according to GasBuddy. At the end of September, the average was down both on a month-to-month basis and on a year-to-year basis. Predicting gas prices can be difficult, given just how dramatically markets can shift, but De Haan said he did not expect prices to “skyrocket out of control.”
“I think there are some reasons why gas prices would remain in somewhat of a check, but if some of these boxes start getting checked at the same time, if there are significant escalations in the Middle East, and if there’s a perfect storm in the US, a perfect hurricane knocking out refining capacity, it could still lead to a surge in price before Election Day,” he said. “I just think the odds of a major surge are rather low.”