Iran oil doomsday in Hormuz may be more fear than reality: Bousso
LONDON, June 22 - U.S. strikes on several Iranian nuclear sites represent a meaningful escalation of the Middle East conflict that could lead Tehran to disrupt vital exports of oil and gas from the region, sparking a surge in energy prices. But history tells us that any disruption would likely be short-lived.
Investors and energy markets have been on high alert since Israel launched a wave of surprise airstrikes across Iran on June 13, fearing disruption to oil and gas flows out of the Middle East, particularly through the Strait of Hormuz, opens new tab, a chokepoint between Iran and Oman through which around 20% of global oil and gas demand flows.
Benchmark Brent crude prices have risen by 10% to over $77 a barrel since June 13.
While Israel and Iran have targeted elements of each other's energy infrastructure, there has been no significant disruption to maritime activity in the region so far.
But President Donald Trump's decision to join Israel by bombing three of Iran's main nuclear sites in the early hours of Sunday could alter Tehran's calculus. Iran, left with few cards to play, could retaliate by hitting U.S. targets across the region and disrupting oil flows.
While such a move would almost certainly lead to a sharp spike in global energy prices, history and current market dynamics suggest any move would likely be less damaging than investors may fear.
The first question to ask is whether Iran is actually capable of seriously disrupting or blocking the Strait of Hormuz.
The answer is probably yes. Iran could attempt to lay mines across the Strait, which is 55 km (34 miles) wide at its narrowest point. The country's army or the paramilitary Islamic Revolutionary Guard Corps (IRGC) could also try to strike or seize vessels in the Gulf, a method they have used on several occasions in recent years.
Moreover, while Hormuz has never been fully blocked, it has been disrupted several times.
During the 1980s Iran-Iraq war, the two sides engaged in the so-called "Tanker Wars" in the Gulf. Iraq targeted Iranian ships, and Iran attacked commercial ships, including Saudi and Kuwaiti oil tankers and even U.S. navy ships.
Following appeals from Kuwait, then-U.S. President Ronald Reagan deployed the navy between 1987 and 1988 to protect convoys of oil tankers in what was known as Operation Earnest Will. It concluded shortly after a U.S. navy ship shot down Air Iran flight 655, killing all of its 290 passengers on board.
Tensions in the strait flared up again at the end of 2007 in a series of skirmishes between the Iranian and U.S. navies. This included one incident where Iranian speedboats approached U.S. warships, though no shots were fired.
In April 2023, Iranian troops seized the Advantage Sweet crude tanker, which was chartered by Chevron, in the Gulf of Oman. The vessel was released more than a year later.
Iranian disruption of maritime traffic through the Gulf is therefore certainly not unprecedented, but any attempt would likely be met by a rapid, forceful response from the U.S. navy, limiting the likelihood of a persistent supply shock.
Indeed, history has shown that severe disruptions to global oil supplies have tended to be short-lived.
Iraq's invasion of neighbouring Kuwait in August 1991 caused the price of Brent crude to double to $40 a barrel by mid-October. Prices returned to the pre-invasion level by January 1992 when a U.S.-led coalition started Operation Desert Storm, which led to the liberation of Kuwait the following month.
The start of the second Gulf war between March and May 2003 was even less impactful. A 46% rally in the lead-up to the war between November 2002 and March 2003 was quickly reversed in the days preceding the start of the U.S.-led military campaign.
Similarly, Russia's invasion of Ukraine in February 2022 sparked a sharp rally in oil prices to $130 a barrel, but prices returned to their pre-invasion levels of $95 by mid-August.
These relatively quick reversals of oil price spikes were largely thanks to the ample spare production capacity available at the time and the fact that the rapid oil price increase curbed demand, says Tamas Varga, an analyst at oil brokerage PVM.
Global oil markets were also rocked during the 1973 Arab oil embargo and after the 1979 revolution in Iran, when strikes on the country's oilfields severely disrupted production. But those did not involve the blocking of Hormuz and were not met with a direct U.S. military response.
The current global oil market certainly has spare capacity. OPEC+, an alliance of producing nations, today holds around 5.7 million barrels per day in excess capacity, of which Saudi Arabia and the United Arab Emirates hold 4.2 million bpd.
The concern today is that the vast majority of the oil from Saudi Arabia and the UAE is shipped via the Strait of Hormuz.
The two Gulf powers could bypass the strait by oil pipelines, however. Saudi Arabia, the world's top oil exporter, producing around 9 million bpd, has a crude pipeline that runs from the Abqaiq oilfield on the Gulf coast in the east to the Red Sea port city of Yanbu in the west. The pipeline has capacity of 5 million bpd and was able to temporarily expand its capacity by another 2 million bpd in 2019.
The UAE, which produced 3.3 million bpd of crude oil in April, has a 1.5 million bpd pipeline linking its onshore oilfields to the Fujairah oil terminal that is east of the Strait of Hormuz.
But this western route could be exposed to attacks from the Iran-backed Houthis in Yemen, who have severely disrupted shipping through the Suez Canal in recent years. Additionally, Iraq, Kuwait and Qatar currently have no clear alternatives to the strait.
It is possible that Iran will choose not to take the dramatic step of blocking the strait in part because doing so would disrupt its own oil exports. Tehran may also consider any further escalation fruitless in light of U.S. involvement and will instead try to downplay the importance of the U.S. strikes and come back to nuclear negotiations.
In the meantime, spooked energy markets, fearing further escalation, are apt to respond to the U.S. strikes with a sharp jump in crude prices. But even in a doomsday scenario where the Strait of Hormuz is blocked, history suggests markets should not expect any supply shock to be persistent.
Enjoying this column? Check out Reuters Open Interest (ROI),, opens new tab your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis. Markets are moving faster than ever. ROI, opens new tab can help you keep up. Follow ROI on LinkedIn, opens new tab and X., opens new tab
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Reuters
18 minutes ago
- Reuters
India's Modi and Iran's Pezeshkian hold phone call, India's foreign ministry says
June 22 (Reuters) - Indian Prime Minister Narendra Modi received a phone call from Iranian President Masoud Pezeshkian, where he was briefed about the conflict between Iran and Israel, India's foreign ministry said on Sunday. Modi emphasised the need for immediate de-escalation, dialogue and diplomacy as the way forward and reiterated India's support for early restoration of regional peace, security and stability, the Ministry of External Affairs statement read.
BreakingNews.ie
21 minutes ago
- BreakingNews.ie
Efforts under way to evacuate Irish citizens from Israel
Efforts are under way to evacuate 15 Irish citizens from Israel, the Tánaiste has said. Simon Harris, foreign affairs minister, said an operation was ongoing to evacuate 15 Irish citizens and their dependants from Israel, working with EU member states. Advertisement He said they were working with a smaller number of citizens in Iran who had requested an evacuation. Around 29 Irish citizens in Iran had registered with the Irish embassy and around 200 in Israel. I'm deeply concerned by the very real risk of an extremely dangerous spiral of escalation now in the Middle East. Urgent de-escalation & diplomacy are crucial. I will travel to Brussels to meet European counterparts. My full statement on latest developments is below. ⬇️ — Simon Harris TD (@SimonHarrisTD) June 22, 2025 Mr Harris said he spoke to Iran's deputy foreign minister on Sunday, at their request, who was 'full of anger'. 'He did say to me that it was the view of Iran that the aggressors would have to learn lessons and pay a price,' he told reporters at Government Buildings. Advertisement 'Of course I articulated in the strongest possible terms that Ireland and the European Union doesn't want to see that, we want to see people step back from the brink and engage in dialogue.' Mr Harris said the US strikes on Iran had made a 'volatile situation even more dangerous' and added an 'extra layer of complexity' to what was already a 'tinderbox'. Taoiseach Micheál Martin and Mr Harris have both called for an 'urgent' de-escalation and a negotiated solution over Iran's nuclear facilities. They said they are in close contact with their European counterparts before a meeting of EU foreign leaders on Monday and of EU leaders later in the week. Advertisement 'Diplomacy and dialogue is ultimately the only way to resolve these issues,' Mr Martin said. 'Iran should commit not to develop nuclear weapons and disavow its nuclear and uranium enrichment programme. 'Nuclear safety is an issue here, modern warfare is very destructive. It is civilians who ultimately suffer, and that is why we need an end to these wars and bring an end to conflict.' There is an urgent need for de-escalation, dialogue & diplomacy in the Middle East. Iran should unequivocally disavow the development of nuclear weapons. A negotiated solution is the way forward. We remain in close contact with international partners ahead of the EU Council. — Micheál Martin (@MichealMartinTD) June 22, 2025 Mr Martin said the escalation on Sunday should not draw attention away from the humanitarian catastrophe in Gaza. Advertisement 'We shouldn't lose sight of the catastrophe that is still unfolding in Gaza while the war between Iran and Israel continues,' he said. 'What is happening in Gaza is appalling and a breach of international humanitarian law, and again, innocent civilians and children are being starved there, and we need that to come to an end.' Staff from Ireland's embassy in Tehran left the country on Friday as the embassy was closed, and updates are being provided on more than 300 Irish peacekeepers stationed in Lebanon. Mr Harris said there were no plans to withdraw Irish troops and that 'decisions are being made constantly' to ensure their safety. Advertisement When asked whether he supported US President Donald Trump's strikes on Iran, Mr Harris said: 'I think it's resulted in an extraordinarily dangerous escalation of a conflict that already best be described as a tinderbox. 'We're now entering a moment of particular danger, because I think the chances now of a spiral of escalation are more likely than ever before, and there is a real prospect now of the international community losing all control of this very, very volatile conflict.' He said there was only a 'very small' number of Irish citizens, many dual nationals, seeking an evacuation, and they were working with European counterparts. He said a significant update on this would be available in the hours ahead. 'Thank god we woke this morning to the International Atomic Energy Agency saying they haven't detected any increase in radiation,' he told RTÉ Radio. 'But imagine if we were waking up this morning to a situation where radiation levels were extraordinarily high, and the health and human danger that that would have presented far beyond Iran as well. So this is an extraordinarily dangerous time.' He said that it was 'sadly true' that international legal norms are not being adhered to, citing the Russian invasion of Ukraine, Israel's 'genocidal activity' in Palestine and now the Iran-Israel conflict. He said there was a diplomatic process in train and his understanding from readouts was 'there was a commitment from the Iranian side to further talks'. Mr Harris said Ireland and Europe are 'fully united in the clear view' that Iran should not be allowed to possess nuclear weapons. 'The way to address this was always through a negotiated solution. Any alternative to that is simply too dangerous for civilians, for the Middle East region and for global security. 'Together with my EU counterparts, we will in the coming hours and days discuss and review the latest developments and consider the next steps Europe can usefully play to support de-escalation.' Minister for Culture Patrick O'Donovan said people woke up on Sunday 'terrified, really, to be quite honest, about the prospect of what's unfolding'. He told RTE's The Week In Politics it is 'terrifying' for citizens in Iran and Israel. 'It does take great people to make leaps of faith in particular places in time to come forward, whether it was in relation to (Anwar el-Sadat) in Egypt, and later on in relation to Bill Clinton and what he did, we do now require people to actually get people around the table,' he said. 'Because, ultimately, as the Taoiseach said, this is terrifying – not only for the innocent communities that are living in both countries, but as well as that for the neighbouring countries in the Middle East, who we obviously all hope are not drawn into a much bigger conflict.'
The Independent
22 minutes ago
- The Independent
Efforts under way to evacuate Irish citizens from Israel
Efforts are under way to evacuate 15 Irish citizens from Israel, Ireland's deputy premier said. Simon Harris, Ireland's foreign affairs minister, said an operation was ongoing to evacuate 15 Irish citizens and their dependants from Israel, working with EU member states. He said they were working with a smaller number of citizens in Iran who had requested an evacuation. Around 29 Irish citizens in Iran had registered with the Irish embassy and around 200 in Israel. Mr Harris said he spoke to Iran's deputy foreign minister on Sunday, at their request, who was 'full of anger'. 'He did say to me that it was the view of Iran that the aggressors would have to learn lessons and pay a price,' he told reporters at Government Buildings. 'Of course I articulated in the strongest possible terms that Ireland and the European Union doesn't want to see that, we want to see people step back from the brink and engage in dialogue.' Mr Harris said the US strikes on Iran had made a 'volatile situation even more dangerous' and added an 'extra layer of complexity' to what was already a 'tinderbox'. Irish premier Micheal Martin and Mr Harris have both called for an 'urgent' de-escalation and a negotiated solution over Iran's nuclear facilities. They said they are in close contact with their European counterparts before a meeting of EU foreign leaders on Monday and of EU leaders later in the week. 'Diplomacy and dialogue is ultimately the only way to resolve these issues,' Mr Martin said. 'Iran should commit not to develop nuclear weapons and disavow its nuclear and uranium enrichment programme. 'Nuclear safety is an issue here, modern warfare is very destructive. It is civilians who ultimately suffer, and that is why we need an end to these wars and bring an end to conflict.' Mr Martin said the escalation on Sunday should not draw attention away from the humanitarian catastrophe in Gaza. 'We shouldn't lose sight of the catastrophe that is still unfolding in Gaza while the war between Iran and Israel continues,' he said. 'What is happening in Gaza is appalling and a breach of international humanitarian law, and again, innocent civilians and children are being starved there, and we need that to come to an end.' Staff from Ireland's embassy in Tehran left the country on Friday as the embassy was closed, and updates are being provided on more than 300 Irish peacekeepers stationed in Lebanon. Mr Harris said there were no plans to withdraw Irish troops and that 'decisions are being made constantly' to ensure their safety. When asked whether he supported US President Donald Trump's strikes on Iran, Mr Harris said: 'I think it's resulted in an extraordinarily dangerous escalation of a conflict that already best be described as a tinderbox. 'We're now entering a moment of particular danger, because I think the chances now of a spiral of escalation are more likely than ever before, and there is a real prospect now of the international community losing all control of this very, very volatile conflict.' He said there was only a 'very small' number of Irish citizens, many dual nationals, seeking an evacuation, and they were working with European counterparts. He said a significant update on this would be available in the hours ahead. 'Thank god we woke this morning to the International Atomic Energy Agency saying they haven't detected any increase in radiation,' he told RTE Radio. 'But imagine if we were waking up this morning to a situation where radiation levels were extraordinarily high, and the health and human danger that that would have presented far beyond Iran as well. So this is an extraordinarily dangerous time.' He said that it was 'sadly true' that international legal norms are not being adhered to, citing the Russian invasion of Ukraine, Israel's 'genocidal activity' in Palestine and now the Iran-Israel conflict. He said there was a diplomatic process in train and his understanding from readouts was 'there was a commitment from the Iranian side to further talks'. Mr Harris said Ireland and Europe are 'fully united in the clear view' that Iran should not be allowed to possess nuclear weapons. 'The way to address this was always through a negotiated solution. Any alternative to that is simply too dangerous for civilians, for the Middle East region and for global security. 'Together with my EU counterparts, we will in the coming hours and days discuss and review the latest developments and consider the next steps Europe can usefully play to support de-escalation.' Minister for Culture Patrick O'Donovan said people woke up on Sunday 'terrified, really, to be quite honest, about the prospect of what's unfolding'. He told RTE's The Week In Politics it is 'terrifying' for citizens in Iran and Israel. 'It does take great people to make leaps of faith in particular places in time to come forward, whether it was in relation to (Anwar el-Sadat) in Egypt, and later on in relation to Bill Clinton and what he did, we do now require people to actually get people around the table,' he said. 'Because, ultimately, as the Taoiseach said, this is terrifying – not only for the innocent communities that are living in both countries, but as well as that for the neighbouring countries in the Middle East, who we obviously all hope are not drawn into a much bigger conflict.'
