Iran’s emergence into open war in the Middle East opens up an enormous range of possibilities for where the conflict can evolve. The first and most worrying economically is that, in response, Israel launches an attack on key infrastructure in the now well-oiled Iranian oil export chain. That option, advanced on Wednesday by the American digital media Axios, would not only damage the regime’s main source of income: it would also add another point of pressure on the price of oil, which has already risen for five consecutive days. It would also force other large producing countries in the Gulf to put more crude oil on the market to compensate. And it would very likely drag Tehran into a much larger response than Tuesday’s contained attack, which caused one death and left little damage.
The weight of the Iranian oil industry is around 20% of its gross domestic product. It is also its largest source of reserves and, in the words of Viktor Katona, head of oil analysis at the Kpler consulting firm, also the “most fragile” link in its economic machinery. “Hence, it could be a target for Israel, especially the ports,” he emphasizes by email. The vast majority of the country’s fossil exports are channeled through a single maritime terminal: Jark Island, in the Persian Gulf. “An attack on the refineries, on the other hand, is unlikely to have a great impact,” Katona believes.
The bulk of Iranian oil wells are located in southwestern Iran, near the borders with Iraq and Kuwait, one of the richest subregions in crude oil on the planet, and a stone’s throw from Masjed Suleiman, the first field discovered in the country a long time ago. just over a century. The refineries, on the other hand, are much more distributed across its vast geography (1.6 million square kilometers, triple that of Spain), with important facilities near the capital, Tehran, and the Caspian Sea.
Recent recovery
Although weighed down by sanctions and a long-standing investment deficit, Iran’s weight in the global oil bazaar (close to 4%) has regained some of its vigor in recent years, especially after the Russian invasion of Ukraine. which has opened a new and important market for its production. Despite Western sanctions, which remain in force, its exports today reach around 3.2 million barrels a day, just half a million below its potential capacity. It is, in short, the third largest producer in the Organization of Petroleum Exporting Countries (OPEC), after Saudi Arabia and Iraq, and the seventh in the world.
Iran’s oil sector relies heavily on purchases from countries that do not recognize US sanctions. Above all, China, by far its largest partner, with a weight close to 95% of the total and which “would be enraged in the event of an Israeli attack,” Katona emphasizes. Not only because Beijing would see the supplier from which one-sixth of the crude oil it acquires abroad for domestic consumption come from, but also because the crude oil that arrives from Iran does so at a knockdown price, “very lower” than the market price. “Any drop in Iranian oil volumes would have an impact on the global market and, particularly, the Asian one,” adds the Kpler analyst.
Iran has the third largest oil reserves on the planet (more than 200 billion barrels, 12% of the total), only behind Venezuela and Saudi Arabia. These figures place it far ahead of oil giants such as Canada (the fourth largest producer in the world), Iraq (the fifth) and far ahead of the United States (the country that extracts the most crude oil each day, but whose reserves exceed 50,000 million barrels). ) or Russia (second world producer, but eighth in reserves, with about 80,000 million).
Vast gas reserves
Oil is Iran’s main source of income, with exports that – according to its own official figures – exceed 35 billion dollars (about 32 billion euros) a year, but it is not the only key energy raw material for its economy. . Iran’s capacity for influence in the gas market is, in fact, even greater: last year it was the third largest producer in the world, according to data from the Energy Institute, after the United States — which has accelerated its pace in recent months to fill the gap. left by Russia in Europe—and Russia itself. Its reserves are not only the largest in OPEC – almost half of the cartel’s gas is in Iran – but also the second largest in the world, only behind Russia.
Iran’s power in the energy sphere also has a lot to do with its location. Geography gives it almost absolute power over the Strait of Hormuz, which connects the Persian and Oman Gulfs and through whose waters flow a fifth of the crude oil traded every day in the world, with a daily flow of a thousand ships. tankers. It is also the route through which practically all shipments of Saudi, Emirati or Qatari liquefied natural gas (LNG) arrive in Europe, essential to replace the fuel that previously arrived from Russia.
This potential closure of Hormuz—the most extreme scenario, which few analysts see as possible in the short term—would take the economic conflict to another dimension. First, about the rest of the region: “Iraq, Qatar, Bahrain and Kuwait would be left without the means to export their oil,” says Katona. “And both Saudi Arabia and the United Arab Emirates would see their sales capacity severely restricted.” Second, about prices to which the Iranian retaliation against Israel has already given free rein: the barrel has registered a rise of seven dollars so far this week, reaching close to 78. Far, still very far, from the more than 120 that it reached in the summer of 2022, at the height of the Russian invasion of Ukraine.