Why oil markets care so much about the country
Oil prices rose Friday as President Donald Trump’s renewed threats against Iran raised concerns about supply disruptions.
Iran is not a major oil producer. The country pumps about 3.4 million barrels of oil a day, according to Kpler. That pales in comparison to the United States and Saudi Arabia, which pump about 13.5 million barrels per day and 9.5 million barrels per day, respectively, according to data from the US Energy Information Administration and OPEC.
However, the latest wave of protests in Iran, triggered by the sharp decline in the country’s currency and Trump’s suggestions that the United States might intervene militarily in the country, shook the energy markets.
“Oil markets are driven by fear,” Helima Croft, head of global commodity strategy at RBC Capital Markets, told CNBC. “This is basically a concern about disruption.”
As tensions between Iran and the United States increased on Friday, market concerns also increased.
“We are watching Iran,” Trump told reporters on Thursday. “You know we have a lot of ships heading in that direction just in case. We have a large fleet heading in that direction and we’ll see what happens.”
Trump’s comments come as more than 5,000 people have died in Iran since protests began on December 28. Human Rights Activists News Agency.
“They were going to hang 837 people,” Trump said in an interview with CNBC on Wednesday. “And I told them you can’t do that. If you do that, it’ll be bad.”
Although the market is currently well supplied, OPEC and its allies, which pump about 40% of the world’s oil, have reduced spare capacity by increasing production last year.
“If we had a conflict between the United States and Iran that would result in the loss of Iranian oil exports, there wouldn’t be much left in the OPEC tank to cover that,” Croft said.
Concerns about a larger regional conflict have also boosted prices, given Iran’s proximity to some of the world’s largest oil producers, namely Saudi Arabia.
“Iran’s position is strategically very important when we think about critical waterways like the Strait of Hormuz, which is a major transit point for oil, and we have seen that before Iran and Iran-backed groups targeted tankers and critical infrastructure in the Gulf,” Croft said.
Iran carried out a series of attacks on oil tankers in the Strait of Hormuz in 2019. About 20% of global crude oil flows through the narrow waterway, according to the EIA.
Although Trump walked back threats of military intervention, he confirmed to CNBC on Wednesday that 25% tariffs on countries doing business with Iran are “going forward.”
Current sanctions against Iran have already blocked the country’s crude exports; The vast majority goes to independent Chinese refiners, who buy oil at a discount to reference prices.
“Can you really squeeze Iran any further, given where its barrels are going?” said Croft. “[Have] sanctions are now gone [the] “Does he have the ability to move the needle when it comes to Iran policy?”
watch video Above to learn more about Iran’s impact on oil markets and what it could mean for consumers.
