The Iranian flag flies above the new Phase 3 facility of the Persian Gulf Star Gas condensate refinery in Bandar Abbas, Iran, in 2019.
Ali Mohammadi | Bloomberg | Getty Images
In fact, U.S. crude oil futures closed Friday at $83.14 per barrel. This was the lowest liquidation since late March, just days before the current spiral of escalation began with an Israeli attack on an Iranian diplomatic compound in Damascus, Syria, on April 1.
Futures fell for three days following Iran’s barrage of missiles and drones against Israel last weekend, but prices eased only slightly higher after Israel’s counterattack on Friday.
Investors appear to believe that Israel’s limited retaliatory strikes, which do not appear to have caused significant damage or casualties, have given Iran an avenue to refrain from striking back.
Markets essentially erased the risk premium associated with tensions between Iran and Israel as traders drove up prices last week on war concerns.
Manish Raj, managing director at Verandara Energy Partners, said: “Traders believe that both Israel and Iran are actually interested in escalating tensions and are only participating in primarily symbolic, face-saving exercises.” I don’t understand that,” he said. “These skirmishes did not affect the oil market. The market believes there will be no disruption to oil flows.”
The oil market is most concerned about Israel attacking one of Iran’s nuclear facilities, which would necessitate an Iranian counterattack, said John Kilduff, founding partner at Again Capital. International pressure on Israel to show restraint appears to be working.of International Atomic Energy Agency It was confirmed on Friday that there had been no damage to Iran’s nuclear facilities.
“We are cautiously prepared to conclude that the cycle of escalation between Israel and Iran is over, at least as far as direct attacks on each other are concerned,” Marco Papic, chief strategist at Clocktower Group, told clients in a note Friday. “Yes,” he told customers. . Papik said it is difficult to imagine a continuing war between Israel and Iran, and it may even be virtually impossible.
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WTI and Brent prices in the past month
“The two countries are quite far apart, given the power projection capabilities of their militaries,” Papic told clients. “So Israel’s limited response to Iran may not simply be a diplomatic choice due to US pressure. Rather, it may be due to material constraints.”
Kilduff told CNBC’s “Squawk Box” on Friday that the hurdles for all-out war to break out in the Middle East and oil supplies to be disrupted are very high.
“Over the years, actually decades now, these attacks have come and been dealt with and dealt with diplomatically and we don’t lose a barrel of oil,” Kilduff said. he said.
But the oil market, and the world at large, may have simply gotten lucky this week. Israel and its US-led allies succeeded in shooting down nearly all of the more than 300 missiles and drones launched by Iran, potentially easing pressure on the Netanyahu government to launch a dramatic armed response. expensive.
But Tom Donilon, former national security adviser to former President Barack Obama, said Iran intended the missiles and drones to cause significant damage. Donilon said the Islamic Republic simply did not expect coalition air defenses to be so effective in defending Israel.
“There’s no guarantee that we’re going to have a 99% success rate every time any of these things happen,” Donilon warned Tuesday at the Columbia Global Energy Summit in New York City. Although the situation has not escalated in the short term, Iran’s attacks have brought about changes in the region, he said.
“In the long term, it’s a structural increase in the risk profile in this region,” Donilon said.
The Strait of Hormuz is a narrow body of water through which 19 million barrels of oil pass from the Persian Gulf to world markets every day. A major disruption in the Strait could send the price of global benchmark Brent crude oil up to $130 a barrel, according to Rapidan Energy Group.
Kilduff said: “When we talk about Iran, everyone focuses on the Strait of Hormuz, which is understandable, but it is unlikely that Iran will have an impact on the Strait of Hormuz because it is so dependent on oil exports. ” he said.
Kilduff said blocking the strait was off the table for Iran, but if Iran began seizing ships, the oil market would take notice.
“Oil markets will focus on this issue like a laser beam. If tankers start avoiding the area and stop transporting oil to avoid direct conflict or interaction with the Iranian Navy, then yes, we It’s going to go back to normal.” It’s soup,” Kilduff said.
