The US-Israeli strikes on Iran and Tehran’s reprisals risk severe disruption to global crude supply, potentially sending oil prices to multi-year highs and impacting inflation and elections.

LONDON: US-ISRAELI strikes against Iran and Tehran’s reprisals could severely disrupt global crude oil supply and send prices soaring to levels not seen in years.

Iran remains a major producer, outputting about 3.1 million barrels per day despite sharp falls since the 1970s due to US sanctions.

The country is believed to hold the world’s third-largest crude reserves, cementing its strategic importance.

The primary risk to the oil market is a blockade of the Strait of Hormuz, a vital waterway for Middle Eastern oil and gas shipments.

Traffic through the artery has plummeted, with many oil tankers turning around or being stopped.

Local Iranian media reported the country’s Revolutionary Guards had warned ships the strait was currently unsafe, effectively closing it.

Washington also issued warnings about safety risks in the Gulf.

Approximately 20 million barrels of crude passed through the narrow waterway daily in 2024, equating to nearly 20% of global consumption.

“Even a doubt about security in the Strait would prompt many vessels, for insurance reasons, to face difficulties transiting, as premiums would rise sharply,” said analyst Thorbjorn Rasmussen.

Analysts have sounded stark warnings about the potential price impact.

“US$100+ oil per barrel soon,” Kremlin economic adviser Kirill Dmitriev said on social media platform X.

Only Saudi Arabia and the United Arab Emirates possess meaningful bypass infrastructure for the Strait.

That alternative route could transport a maximum of 2.6 million barrels daily, according to the US Energy Information Administration.

US air and navy assets could re-establish shipping security if Washington chose to do so, said Jakob Larsen, safety chief at shipping association BIMCO.

Iranian crude is relatively cheap to extract, with production costs as low as $10 per barrel, making it highly profitable.

Only Saudi Arabia, Iraq, Kuwait and the UAE enjoy similarly low production costs.

Major Western producers like Canada and the US typically face costs of $40 to $60 per barrel.

Iran exports between 1.3 and 1.5 million barrels daily, with over 80% bound for Chinese refineries due to US sanctions.

Oil-producing US allies Kuwait, the UAE and Iraq were all targeted by Iranian reprisal attacks.

Multiple explosions were also heard over Saudi Arabia.

“The risk of escalation is greater than seen in recent regional conflicts,” said Jason Bordoff, founding director at Columbia University’s Center on Global Energy Policy.

Neighbours hosting US bases “know they are vulnerable because the Iranians have enough basic intermediate-range missiles that allow them to strike vital points,” noted Pierre Razoux of the Mediterranean Foundation for Strategic Studies.

At-risk infrastructure includes hydrocarbon hubs, electrical power and seawater desalination plants.

Soaring oil prices risk a return to high inflation, hurting the global economy.

Crude reaching US$100 per barrel for the first time since early 2022 could also hurt US President Donald Trump in the midterm elections.

He has promised American voters cheap energy.

 The Sun Malaysia