Iran tensions raise oil market risks as Strait of Hormuz threat looms

Geopolitical Risks & Oil Market Impact - Iran has the capability to block the Strait of Hormuz and the Bab-el-Mandeb Strait, potentially disrupting global trade [2] - Closing the straits would be a last resort for Iran, considering the significant impact on international relations and regional powers [6][7] - Approximately 20 million barrels per day of oil transit through the Strait of Hormuz, representing about a quarter of global trade and a fifth of global LNG trade [6] - Shipping rates have increased, reflecting the risk premium associated with potential disruptions [6][7] Iran's Nuclear Program & Potential Conflict - Iran has enriched enough uranium to build several nuclear weapons, exceeding the 5% level needed for peaceful purposes [10] - It is assumed that Israel has the capability to attack Iran's nuclear facilities independently [9] - A sustained attack on Iran could remove 15 to 16 million barrels per day of Iranian oil from the market, impacting oil prices [14] Oil Supply & Demand Dynamics - The market has been concerned about oversupply in Q4 due to a less optimistic demand outlook [5] - OPEC's current barrel production is keeping the market in check [6] - If Iranian barrels are taken off the market, China will need to seek alternative sources, and OPEC has spare capacity to potentially compensate [15] - There are questions about whether Middle Eastern OPEC members are willing to increase production to offset Iranian losses, given the geopolitical sensitivities [15] - Long-term, there is uncertainty about the future of Iranian oil production, with potential for decline due to prolonged instability [17]