Iran-Israel tensions: Analysts optimistic about stability of oil supplies

Al Etihad

15-06-2025

15 June 2025 16:56
A. SREENIVASA REDDY (ABU DHABI)Most analysts remain optimistic about the stability of crude prices and the continuity of global oil shipments, especially through the Strait of Hormuz, despite escalating tensions between Iran and Israel.While the conflict has fuelled market speculation, most industry analysts and trade experts continue to express confidence in the resilience of global energy trade. Their view is anchored in historical precedent, economic pragmatism, and the deeply interwoven trade relationships that characterise the Arabian Gulf region.The Strait of Hormuz — a narrow but critical maritime corridor at the mouth of the Arabian Gulf — handles close to 30% of the world's crude and refined petroleum exports and around 20% of global LNG flows. A complete closure would undoubtedly shake global energy markets. However, most observers consider such an outcome unlikely.
"While we don't yet foresee a war escalating to a Hormuz blockade, its closure would severely impact global energy flows," a Chinese oil trader told S&P Global. But despite rising tensions and military strikes between Israel and Iran, there has been no significant disruption to commercial shipping so far. Historical confrontations between the two countries have also avoided this red line.In a note issued on June 13, JP Morgan analysts assessed the risk of Iran closing the Strait as 'very low', citing Iran's reluctance to damage its economic lifeline — especially its vital trade relationship with China.According to S&P Global Commodity Insights, Iran pumped 3.24 million barrels per day (b/d) in May, most of which is exported to China. Any move to restrict traffic through Hormuz would not only sever this economic artery but also affect its ability to send supplies to China.Markets initially reacted with concern. ICE Brent crude futures spiked 8.97% on June 13 — the sharpest single-day gain in five years. But analysts at S&P Global and Goldman Sachs expect such price volatility to be temporary, barring direct attacks on energy infrastructure. 'We've seen these spikes before. Prices jump, then retreat when it's clear that oil flows are not actually impacted,' said Richard Joswick, Head of Near-Term Oil Analysis at S&P Global.Supporting this outlook is the presence of alternative logistics. The UAE's Habshan–Fujairah pipeline, for instance, enables crude to bypass Hormuz altogether. Long-term LNG supply contracts between China and exporters like Qatar and the UAE also offer stability and reduce reliance on spot markets.War risk insurance premiums in the Arabian Gulf, which cover ships navigating high-risk zones, remain steady at 0.05%–0.07% of vessel hull value — unchanged for 18 months. Though freight charges could rise if hostilities deepen, there is no current indication of a shipping crisis.Asian refiners are the largest buyers of Gulf crude. 'Extreme actions could provoke responses from Asian military powers. So both Iran and Israel are likely to exercise caution,' said a Tokyo-based feedstock manager. Refiners in South Korea, Japan, and Thailand have echoed similar sentiments, underscoring confidence that the Strait of Hormuz will stay open.Even Goldman Sachs, while adjusting its geopolitical risk premium, predicts Brent crude to fall back to the $60s in 2026, assuming no long-term infrastructure damage and a compensatory output from OPEC+.In a potential escalation scenario, Goldman estimates a temporary loss of 1.75 million b/d from Iran if its export infrastructure is damaged — but believes this shortfall could be partially offset by OPEC+ spare capacity. Under such conditions, Brent could peak over $90/b, before normalising as supply recovers.S&P Global concurs that the real inflection point would be a direct disruption to exports. 'Unless exports are impacted, the price upside will fade,' its analysts noted. Joswick reinforced this by citing 2024, when similar flare-ups triggered short-term price movements that quickly reversed once it became clear supply was unaffected.Ken Pollack, vice president for policy at the Middle East Institute, noted: 'If Iran closed the Strait of Hormuz, the US would come in with all guns blazing.' Analysts warn that such a move would not only provoke military responses but would be viewed by Gulf neighbours as a direct economic threat.'There is no doubt the situation in the Arabian Gulf is very tense. We have reports that more shipowners are now exercising extra caution and are opting to stay away from the Red Sea and the Arabian Gulf,' said Jakob P Larsen, Chief Safety & Security Officer at BIMCO, the world's largest international shipping association.'There is currently no indication that Iran will seek to disrupt shipping in the Gulf, and no indication at this point that the Houthis will seek to disrupt shipping in the Red Sea. The tripwire will be the perception of the US' involvement. If the US is suddenly perceived to be involved in attacks, the risk of escalation increases significantly,' Larsen told Aletihad.'BIMCO encourages shipowners to follow developments closely and implement ship defence measures according to the industry guidance document,' he added.
Meanwhile, broader OPEC+ dynamics are also at play. Eight OPEC+ member states are moving to restore 2.2 million b/d of curtailed output to regain their market share. 'We'll likely see more unwinding of voluntary cuts,' said Harry Tchiliguirian, Head of Research at Onyx Capital Advisory. This will likely have a mitigating impact on oil prices.