Iran Has Options to 'Play the Oil Card,' McNally Says

Geopolitical Risk & Oil Market Impact - The market is pricing in some risk related to potential conflict escalation between Israel and Iran, but traders are somewhat desensitized to geopolitical disruptions due to past false alarms [4][5] - A full disruption of the Strait of Hormuz, through which 18 to 20 million barrels a day of oil and 20% of traded LNG pass, is considered a possibility but deemed "suicidal and self-harming" for Iran [2] - Iran has alternative options to disrupt oil markets, including attacks on energy infrastructure like the Saudi stabilization plant (Abqaiq) or harassment of ships [3] - The conflict's expansion to include attacks on key Gulf infrastructure is a major concern for Gulf countries [14] Spare Capacity & Alternative Routes - Most of the world's spare oil production capacity is located within the Strait of Hormuz, primarily in Saudi Arabia and the UAE [7] - Limited options exist to redirect oil around the Strait of Hormuz, including the Saudi East-West pipeline (5 million barrels a day capacity, with potential to increase by 3-35 million barrels a day) and the UAE's Fujairah pipeline (approximately 1 million barrels a day) [8][9] - Redirecting 3 to 4 million barrels a day of crude oil around the Strait of Hormuz might be possible [9] Strategic Petroleum Reserve (SPR) - The US SPR is at approximately 400 million barrels, representing half of its previous capacity [11] - Coordinated stock releases with IEA partners could potentially provide 2 million barrels a day in the event of a major disruption [12] - SPR release would only make a dent in the potential loss of 14 million barrels a day of crude and 6 million barrels a day of products [12] OPEC+ Response - OPEC+ is expected to maintain its current policy, remaining neutral and hoping the situation de-escalates [15]