Israeli threat looms over Iran’s powerful oil industry | International

Iran’s entry into open war in the Middle East opens up a huge range of possibilities for the development of the conflict. First, and most economically alarming, is that Israel is responding by launching an attack on key infrastructure in Iran’s now well-functioning oil export chain. This option, proposed on Wednesday by US digital media outlet Axios, would not only damage the regime’s main source of income: it would also add another point of pressure on oil prices, which have already risen for five days in a row. It would also force other major Gulf producing countries to supply more crude oil to the market to compensate. And it will likely entail a much larger response than Tuesday’s contained attack, which left one person dead and little damage.

The Iranian oil industry accounts for about 20% of its gross domestic product. It is also its largest source of reserves and, according to Victor Caton, head of oil analysis at consultancy Kpler, also the “most fragile” link in its economic engine. “Therefore, this could be a target for Israel, especially the ports,” he stresses in an email. The vast majority of the country’s fossil fuel exports pass through a single maritime terminal: Jhark Island in the Persian Gulf. “On the other hand, attacks on oil refineries are unlikely to have much impact,” Katona says.

The bulk of Iran’s oil wells are located in southwest Iran, close to the borders with Iraq and Kuwait, one of the richest crude oil subregions on the planet, and a stone’s throw from Masjed Suleiman, the first field discovered in the country in a long time. a little over a century ago. On the other hand, oil refineries are much more spread out across the country’s vast territory (1.6 million square kilometers, three times larger than Spain’s), 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 market (about 4%) has regained some of its strength in recent years, especially after Russia’s invasion of Ukraine opened up a new market. an important market for its production. Despite Western sanctions that remain in place, the country’s exports now stand at about 3.2 million barrels a day, just half a million below potential capacity. In short, it is the third largest producer in the Organization of the Petroleum Exporting Countries (OPEC) after Saudi Arabia and Iraq, and the seventh largest in the world.

Iran’s oil sector relies heavily on purchases from countries that do not recognize US sanctions. First of all, China is by far its largest partner, weighing close to 95% of the total and which “will be furious if Israel attacks,” Katona emphasizes. Not only because Beijing will see a supplier that supplies one-sixth of the crude oil it buys abroad for domestic consumption, but also because the crude oil coming from Iran comes at a bargain price “very low” than the market price . price. “Any drop in Iranian oil volumes will have an impact on the global market and, in particular, the Asian market,” adds the Kpler analyst.

Iran has the third largest oil reserves on the planet (more than 200 billion barrels, 12% of the total), behind only Venezuela and Saudi Arabia. These numbers put it well ahead of oil giants like Canada (the world’s fourth-largest producer), Iraq (fifth) and well ahead of the United States (the country that produces the most crude oil daily, but whose reserves exceed about 50 billion barrels). or Russia (second world producer, but eighth in reserves, about 80 billion).

Huge gas reserves

Oil is Iran’s main source of income, exporting more than $35 billion (about €32 billion) a year according to its own official figures, but it is not the only key energy raw material for its economy. Iran’s potential for influence in the gas market is actually even greater: Last year it was the world’s third-largest producer, according to the Energy Institute, behind the United States, which has accelerated growth in recent months to fill the gap left by Russia in Europe – and itself. Russia. 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 after Russia.

Iran’s energy power also depends largely on its location. Geography gives it almost absolute control over the Strait of Hormuz, which connects the Persian and Oman Gulfs and through whose waters a fifth of the crude oil traded in the world passes every day, with thousands of tankers flowing in each day. It is also the route through which Europe receives virtually all liquefied natural gas (LNG) shipments from Saudi Arabia, the Emirates and Qatar, which are needed to replace fuel that previously came from Russia.

This potential closure of Hormuz – an extreme scenario that few analysts consider possible in the short term – would take the economic conflict into another dimension. First about the rest of the region: “Iraq, Qatar, Bahrain and Kuwait will be left without the means to export their oil,” Katona says. “Both Saudi Arabia and the United Arab Emirates will face severe constraints on their sales capabilities.” Secondly, about prices, which Iran’s retaliatory measures against Israel have already given free rein: this week the barrel rose by seven dollars, approaching 78. Far, still very far from the more than $120 it reached. in the summer of 2022, at the height of the Russian invasion of Ukraine.