Recent fighting has the potential to disrupt global oil markets, particularly if Iran decides to cut off its oil supply, an action that would primarily impact China, the largest buyer of Iranian crude.
Historically, attacks on Iran's nuclear program by the United States have led to soaring oil prices. Although prices are expected to rise when trading resumes this week following a recent military action, the long-term implications remain uncertain.
Oil traders are assessing whether the U.S. attack might escalate into wider conflict, potentially damaging oil exports from the Persian Gulf. Muyu Xu, a senior crude oil analyst, noted that broader fighting could increase prices due to potential damage to oil-loading facilities or interruption of tanker traffic. So far, there have been no significant disruptions since the escalation of the Israel-Iran conflict earlier this month, despite some damage to a refinery and depot in Tehran.
"Until now, we haven’t seen a single barrel removed from the market," Ms. Xu stated.
If Iran were to act militarily to hinder oil flow, the greatest impact would likely be felt by China, which is closely aligned with Iran and is the destination for nearly all of its oil exports. Since the outbreak of hostilities starting June 13, oil prices have increased by approximately 10 percent, although they saw a decline on Friday after the U.S. President indicated a decision on military action against Iran would come within two weeks.
Since the Iranian Revolution in 1979, U.S. officials have been concerned about Iran potentially using mines or missiles to block tanker traffic through the Strait of Hormuz, a crucial route for one-sixth of the world's oil. Significantly, China imports about one-third of all oil that exits the gulf.
In contrast, the U.S. purchases less than 3 percent of oil from the Persian Gulf, primarily from northern Saudi Arabia. The U.S. has been a net exporter of oil since 2020, largely due to advancements in fracking technology.
Iran's oil exports have significantly declined in recent years, although there was a partial recovery last year as China increased its imports following a diplomatic thaw with Saudi Arabia. The U.S. and Europe have imposed wide-ranging sanctions on Iranian oil purchases in an effort to compel Tehran to cease its nuclear weapons development.
China, however, has benefited from purchasing Iranian oil at substantial discounts, arguing that the sanctions are not binding due to the lack of United Nations endorsement.
The future of Iran’s oil exports remains uncertain, particularly as sanctions aimed at curtailing its nuclear ambitions continue to impact its ability to sell oil on the global market.