America and Israel together have carried out a massive bombardment on thirty major cities of Iran including its capital Tehran. This unexpected military action has shaken the whole world. Without backing down, Iran has also started a counter military operation named ‘Fatah-e-Khyber’. This is going to have a direct impact on the common man’s kitchen and vehicle fuel expenses.
This spark that flared up in Western Asia now seems to be turning into a long war. Iran has made it clear that it will target Israel as well as America’s allies. When such powerful countries of the world get involved militarily, the first thing that happens is that the international market of crude oil collapses badly. There is a possibility of this conflict causing major devastation in the whole world regarding crude oil.
Iran produces 33 lakh barrels of crude oil
Talking about production, Iran produces about thirty-three million barrels of crude oil every day. This quantity is about three percent of the total supply of the entire world. But the real matter of concern is not the production, but the traffic through the Strait of Hormuz. Twenty percent of the world’s total oil trade passes through this very important sea route.
According to statistics, every day about 20 million barrels of crude oil and refined products reach the markets all over the world through this route. Not only this, twenty percent of the global liquefied natural gas (LNG) trade is also completely dependent on the Strait of Hormuz. Ever since the US Army has increased its activities in the Middle East, the prices of crude oil have increased by ten percent.
Fear of ‘fear premium’, prices can go up to $110
According to a report by Business Standard, if the situation continues to deteriorate then in the worst case the price of crude oil may rise to $ 110 per barrel. This would be a huge and terrifying increase of fifty-seven percent over current prices. On Friday itself, crude oil had touched the level of $72 per barrel and currently Brent Crude was trading around $72.87.
At present, instead of normal demand and supply economics, the atmosphere of war panic is dominating the market. According to the analysis of Equirus Securities experts Maulik Patel and Khushboo Balani, the tension is posing a direct threat to the Strait of Hormuz. Even the slightest disruption or disruption can add a huge ‘fear premium’ of $20 to $40 per barrel to oil prices.
Rabobank International experts Joe DeLaura and Florence Schmidt have also confirmed the same fact. He says that due to geopolitical risk, the fear premium completely dominates the market. Oil prices remained at a high level during the month of February due to America’s continued aggression. Due to this fear, there is a danger of crude oil prices going beyond 95 to 110 dollars.
Iran has a weapon named Strait
The oil producing countries of the Persian Gulf face a major geographical compulsion. According to Rabobank International, these countries have very limited pipeline network capacity. This simply means that they cannot ignore this important strait and adopt any other route for their oil exports. This sea route is located very close to a major and big Iranian port like Bandar Abbas.
Iran has a huge fleet of small boats, high-speed attack aircraft and sea mines in this entire maritime area. If these weapons are used, global oil supplies will be severely disrupted.