Oil prices drop, but Iran-Israel conflict raises many risks

The intense rounds of air attacks between Israel and Iran have analysts and traders poring over scenarios for the direction of energy markets.
A wide range of outcomes are possible, with prices in the most extreme cases soaring above $120 a barrel, analysts at Deutsche Bank wrote in a note, but also drifting down to $50 a barrel next year.
The initial round of Israeli attacks sent oil prices 7% higher Friday. Still, at about $74 a barrel, Brent crude remains below the $80 average for 2024, the Deutsche Bank analysts wrote. The market continued to waver, though, and by Monday, oil prices had fallen about 3%.
Such relatively modest levels may seem surprising with fighting raging in a region that produces about 25 million barrels a day, according to Rystad Energy, a consulting firm.
The conflict is also flaring up at a crucial time for oil markets with the start of the summer driving season, when demand rises.
An initial bump in oil prices, followed by a fall.
Despite increasing risks, traders appear to be skeptical about the possibility of disruption. They are assuming that if international mediation manages to halt the fighting, prices could fall sharply.
'As long as supply has not been disrupted, I don't think we are going to see huge jumps in oil prices, because the geopolitical risk premium is already factored in,' said Bachar El-Halabi, senior energy markets analyst at Argus Media, a commodities research firm.
A nightmare scenario that could double oil prices.
On the other hand, some analysts think the market is being complacent.
'We see the risk of a serious supply outage increasing significantly in an extended war scenario,' Helima Croft, head of global commodity strategy at investment bank RBC Capital Markets, wrote in a note to clients.
The most worrisome scenario would be if Iran's leaders close down the Strait of Hormuz, the narrow passageway that leads from the Persian Gulf and, eventually, to the Indian Ocean.
About one-third of the volume of crude oil exported by sea as well as 20% of the world's liquefied natural gas, another vital commodity, flow through this cliff-lined channel bordered on the north by Iran, according to Rystad.
Deutsche Bank analysts think that if Iran were to block the strait for two months, prices could soar to $124 a barrel. But an effort to halt shipping is likely to bring a response from the United States, which has ships from the 5th Fleet based in Bahrain on the Persian Gulf, and other countries.
And closing the strait would harm Iran, which exports most of its oil from terminals on Kharg Island in the gulf.
Prolonged fighting could push oil to $90 a barrel.
Deutsche Bank figures that based on current prices, the market is now assuming the loss of some of Iran's exports, which recently have been about 1.5 million barrels a day. Most of this oil goes to China, but the small refineries there, which are Iran's main customers, would need to find other sources of oil if these flows stopped.
Analysts may be focusing too much on the potential for closure of the strait, said Croft, who added that it would be 'exceedingly difficult' to pull off for an extended period.
Instead, the Iranian navy could scare tanker owners by harassing cargo ships, which could disrupt shipping. Iran could also encourage militia proxies in neighboring Iraq to threaten Baghdad's oil infrastructure, which exports more than 3 million barrels a day.
The cost of hiring tankers to carry oil from the region has jumped, according to Kpler, a firm that tracks shipping. But Kpler analysts said Monday that, so far, the flow of oil from the region was 'as normal.'
If the fighting is prolonged, analysts including Croft said that Israel might hit Iran's energy export installations to curb Tehran's ability to finance its nuclear program.
In that case, analysts said, OPEC members including Saudi Arabia and the United Arab Emirates would increase output, but perhaps not by enough to fully offset the loss of Iranian crude.
Analysts at Goldman Sachs modeled one scenario in which Brent crude jumps to $90 a barrel after the loss of Iranian production but falls back toward $60 a barrel in 2026 as supply recovers.
This article originally appeared in The New York Times.
Copyright 2025

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

Yahoo

an hour ago

• Yahoo

Deutsche Bank Slashes Intuitive Surgical (ISRG) To Sell from Neutral

Intuitive Surgical, Inc. (NASDAQ:ISRG) is one of the best stocks to buy. On June 9, Deutsche Bank slashed its rating for ISRG from Neutral to Sell, trimming the price target from $440 to $515. Deutsche Bank announced that it will hold an investor webinar with Jon Reuter, COO of Keck Hospitals of USC, on June 9, to explore how hospitals are viewing Intuitive's remanufactured Endowrist instruments. The bank projected rising competition for Intuitive Surgical, signaling potential headwinds ahead. Deutsche Bank, though confident in da Vinci's lasting dominance, pointed to several upcoming rival systems, including Medtronic's Hugo, expected FDA approval in late 2025, as potential threats to ISRG's competitive edge. Even with a Sell rating, the firm highlighted the da Vinci system as a historic disruptor within medical technology. A medical team performing minimally invasive surgery with a da Vinci Surgical System. Deutsche Bank noted that shareholders have realized substantial gains, with shares soaring more than 26,000% since the company's IPO in 2000, compared to a nearly 500% rise in the broader market, and ISRG remains a bullish idea. Intuitive Surgical, Inc. (NASDAQ:ISRG) develops robotic systems like da Vinci and Ion to advance minimally invasive procedures, supported by specialized tools, training, and digital services to enhance surgical outcomes and healthcare efficiency. While we acknowledge the potential of ISRG as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock. READ NEXT: The Best and Worst Dow Stocks for the Next 12 Months and 10 Unstoppable Stocks That Could Double Your Money. Disclosure: None. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data

USA Today

12 hours ago

• USA Today

Israel may run low on missile interceptors, putting US in a 'bind'

If the U.S. chooses to replenish Israel's missile interceptors, it may have to draw them from other stockpiles. As Israel downs incoming volleys of Iranian missiles, a shortage of its missile interceptors could put both the United States and Israel in a bind. After a week of its aerial war with Iran, Israel's long-range Arrow interceptors are running low, the Wall Street Journal reported on June 18. In addition to Arrow interceptors, which are Israeli-made, Israel also has U.S.-made THAAD systems, which intercept medium-range ballistic missiles. If the United States chooses to replenish Israel's missile interceptors, it would mean drawing from other stockpiles, since Congress wouldn't have time to surge U.S. defense production of more, according to Brandan Buck, a research fellow at the Cato Institute. That could include siphoning off interceptors marked off for delivery to Ukraine, to Taiwan in a possible future conflict, or from the U.S.'s own national stock, Buck said. "If they truly do run out... that's going to put us in a position in which we have to make some serious decisions," Buck said. "It's going to put the U.S. and Israel in a bit of a bind," he added. The U.S. could also position some naval ships off the coast to "augment some of their capacity," according to Buck. The USS Nimitz, a massive aircraft carrier, is en route to the region and will arrive in less than a week, USA TODAY previously reported. It will join the USS Carl Vinson, which moved to the Middle East in April. When Iran launched a volley of ballistic missiles at Israel in October, the U.S. helped to intercept its attacks using interceptors fired from two other U.S. warships. The U.S. spends $3.4 billion to bolster Israel's missile defense every year, including $1.3 billion for its Iron Dome, according to the State Department. Iran could still have thousands of missiles in its arsenal Israel keeps information about its missile interceptor stockpiles tightly under wraps. Its military said on June 16 that it had taken out a third of Iran's missile launchers. Israel says its missile defense success rate stands at greater than 90% against Iran's attacks in the ongoing aerial war. Still, some have evaded Israel's defenses, including the missile that struck a hospital in southern Israel on Thursday. It's also unclear exactly how many missiles Iran has left. The Pentagon estimated in 2021 that Iran just under 3,000 missiles of different ranges. Since Israel attacked Iran on June 12 through June 16, Iran had fired around 370 missiles, meaning thousands could remain. Israel's multilayered air defense system is designed to take down incoming missives from a variety of ranges. The Iron Dome intercepts missiles and rockets fired from a short range of up to around 45 miles, and David's Sling intercepts cruise missiles and rockets at a range of up to about 125 miles. The longer-range missiles fired by Iran are picked up by the Israeli-made Arrow 2 and Arrow 3 systems, which intercept ballistic missiles at a range of up to around 60 miles and 1,500 miles, respectively. In October, the United States sent Israel a THAAD system – capable of intercepting missiles inside and outside of the atmosphere – including American personnel to operate it. According to news reports, the United States sent a second THAAD to Israel in April, although the Pentagon has not publicly confirmed the transfer. The U.S. Army has just seven THAAD batteries in total – it will get an eighth later this summer.

Miami Herald

14 hours ago

• Miami Herald

Top analysts reset oil price targets amid Middle East chaos

The world has gotten a bit crazy in 2025. An ongoing global trade war has sparked worries over worldwide economic growth, and now, Israel and Iran are locked in a battle with missiles flying back and forth, threatening global oil supplies. The potential for a major energy crisis to develop because of the Iran and Israel conflict has caused Brent Crude and West Texas Intermediate oil prices to surge, and in turn, that's created an entirely new threat to the economy. Don't miss the move: Subscribe to TheStreet's free daily newsletter The potential for the battle in the Middle East to spread, potentially shutting off oil seaborne transports through the Strait of Hormuz, and possibly removing Iranian oil from the global market, has lifted Brent crude and WTI crude per barrel prices by 18% to $79 and 21% to $75 this month. The situation has captured the attention of Citigroup, JPMorgan, and Goldman Sachs' oil analysts, leading them to reset their oil price targets. CFOTO/Getty Images President Donald Trump has announced a string of harsher-than-expected tariffs this year to rekindle US manufacturing. The moves, which include 25% tariffs on Mexico, Canada, and autos, plus a 30% tariff on China and a 10% baseline tariff on all imports, have forced economists to rethink their global projections for economic growth this year. Related: Forget tariffs, Fed interest rate cuts may hinge on another problem For instance, earlier this month, the World Bank reduced its worldwide gross domestic product, or GDP, forecasting 2.3% from 2.7% previously, citing tariff uncertainty. Contributing significantly to the reduced outlook is a major downgrade of U.S. growth to 1.4% from 2.3%. The World Bank lowered its U.S. forecast to 1.6% in 2026, down from 2%. The Federal Reserve also anticipates the slowing growth in the US because of tariffs' bite. The Fed updated its closely watched Summary of Economic Projections on June 18. It expects unemployment to increase to 4.5% from 4.2%, and projects that Personal Consumption Expenditures (PCE) inflation will climb to 3% this year, up from expectations in March for 2.7% inflation. Fed officials expect U.S GDP growth to be just 1.4% in 2025, down from 1.7% in March, and well below the 2.5% GDP growth the US economy delivered in 2024. In China, the World Bank expects that slowing activity due to higher tariffs will reduce GDP to 4.5% in 2025, down from 5% in 2024. In 2026, it expects GDP to fall further to 4%. The economic situation could get even more uncertain if Israel and Iran's conflict continues to prop up crude oil prices. Oil prices can significantly impact inflation, directly and indirectly, further crimping consumer and business spending. We're already seeing concerning signs that higher oil prices are translating into higher prices at the pump for gasoline. "WTI crude oil $77/bbl, the national average price of gasoline is now $3.21 per gallon, and could by next week climb to its highest ever while President Trump has been in office ($3.25/gal) due to Middle East tensions," wrote GasBuddy's Patrick De Haan on X. Roughly 18 million to 19 million barrels of oil flow through the Strait of Hormuz daily, representing 20% of global oil consumption, including crude, condensates, and fuel. Its proximity to Iran means it could become an oil chokepoint if Iran acts to block it. The possibility of that happening is "under serious consideration," said Esmail Kosari, an Iranian parliament member and IRGC general, on June 15. More Economic Analysis: Federal Reserve prepares strong message on long-term interest ratesMassive city workers union approves strikeAnalyst makes bold call on stocks, bonds, and gold Iran's oil production and its ability to export oil to its largest consumer, China, may also be significantly impaired. Iran is OPEC's third-largest member, producing about 3.3 million barrels per day. Citi estimates that if the conflict disrupts 3 million bpd for multiple months, crude oil prices could reach $90 per barrel, up from $75 now, and the low-to-mid $60s before Israel attacked Iran over its nuclear development program. JPMorgan's analysts believe that shutting the Strait of Hormuz could catapult crude oil prices to an eye-popping $120 to $130 per barrel. Goldman Sachs, meanwhile, believes the conflict creates a risk premium of about $10 per barrel. In one scenario, Goldman Sachs' analysts say that damage to Iran's export infrastructure that reduces Iran's supply by 1.75 million bpd "before gradually recovering," with OPEC+ production offsetting roughly half of the reduction, would lead to Brent crude oil peaking "just over $90/bbl." Goldman Sachs, however, expects that the increase would prove temporary, with prices declining "back to the $60s in 2026 as Iran supply recovers." However, the situation would be worse if the Strait of Hormuz were blocked for an extended period. "While an interruption of trade through the Strait of Hormuz, through which nearly 1/5 of global oil production flows, appears much less likely, there is focus from investors and policymakers on this risk, because core OPEC+ producers may be unable to deploy spare capacity in this extreme tail scenario. Based on our prior analysis, we estimate that oil prices may exceed $100/bbl in an extreme tail scenario of an extended disruption." Related: Veteran fund manager sends dire message on stocks The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.