October 6, 2024 - 4:00pm
Whatever the Israeli retaliation for Iran’s ballistic missile barrage might be, attacking Tehran’s oil industry would be a bad idea. More than that, it reveals once again an inability to understand commodity markets among Western leaders.
As we have seen in recent days, the mere rumour that such an attack might be imminent was enough to drive oil prices up. Demand for oil is notoriously inelastic, meaning that “it does not take significant undersupply for prices to skyrocket, nor does it take significant oversupply for prices to crash,” as the energy experts at Doomberg have pointed out. During the height of the Covid-19 pandemic, for example, US crude oil futures plummeted to a negative $37 per barrel, meaning that suppliers were basically paying anyone who was willing to take their oil.
The plan to destroy Iran’s oil industry would certainly do massive economic harm to the country, but the fallout would not be limited to Iran. Any conflagration that drives up international prices for energy will hit the EU hard. The bloc consumes approximately 11% of the world’s oil and 8% of its natural gas while only producing 0.5% of the former and 0.9% of the latter. The major European economies are already either in a recession (Germany and Austria) or on the brink of a financial crisis (France). If you throw in oil prices of over $100 per barrel, there is no credible scenario for an economic recovery.
And then there’s the US. America is swimming in oil and gas, but it is unlikely that it has the export capacities to compensate for a complete withdrawal of every last Iranian barrel from the market. To make matters worse, China has been one of Iran’s major customers, so any Israeli attack that appears to be backed by Washington would be interpreted as a hostile act by Beijing.
To make matters worse, someone else would actually profit from such a scenario: Vladimir Putin. Surging oil prices would spill additional billions of revenue into Moscow’s war chest, something that no G7 price cap would be able to prevent. What this means is that any attack on Iranian production would have to be immediately compensated by additional supply from somewhere else.
Saudi Arabia could potentially play that role, but the Biden administration has often antagonised Riyadh and it is not clear whether Mohammed bin Salman would be willing to help out, especially since he would profit from higher oil prices. What’s more, despite the pragmatic approach of the Saudi elite to relations with the state of Israel, the Saudi public is less enthusiastic, and appearing to do the “Zionist entity’s” bidding could cause domestic problems for the Kingdom.
At this point, it should be assumed that the Israeli leadership is aware of all these facts and will therefore threaten but not execute a full attack on Iran’s oil industry. While a limited attack could also have significant consequences, these would most likely be short-lived and could also serve as a wake-up call for the Europeans to finally get their energy policy in order. If not, it is just a matter of time until geopolitical instability causes another major oil price shock and, consequently, a European energy crisis.
Ralph Schoellhammer is assistant professor of International Relations at Webster University, Vienna.
Raphfel
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SubscribeIran could theoretically block the Strait of Hormuz, hurting other oil & gas suppliers too ?
The Iranians have said in the past that if they can’t sell oil they will block the Straits and nobody else will sell oil either, but that was before they sat down with the Saudis and are now on better terms, so who knows
At this point does anyone doubt they can block the S of H, they also have the ability to hit any air, or military base in the region, they could also sink a US Aircraft Carrier. Attacking them would be madness at this point
Make peace and do a deal, its the only thing that makes sense
Would this “deal” involve them renouncing the sponsorship of terrorism?
Will the US also renounce the sponsorship of terrorism ?
Don’t worry Martin, war is coming, you will get the blood you want
Any deal with Iran can only be temporary.
True, the Iranians know not to trust the US
Astonishing that there are still some people who think we should rejoin this dysfunctional shambles. More astonishing still that quite a few of them are in the government.
I thought net zero was supposed to protect Europe from authoritarian fossil fuel providers.
I drive a plug in hybrid, people think I’m some kind of green nut, far from it. its only when petrol hit €2 a litre that my friends could finally understand what I was talking about
War with Iran will see prices go far higher than €2 a litre
The worrying thing is that over the past five years, so many policies were pursued with a vengeance, even though decades of experience told us that they would not work and on top of that cause mayhem and disaster.
Greetings from the USA. Here i thought many in Europe were enamored with net-zero and mostly doing away with oil. Would an Israeli attack on the oil installations be “good for the climate”, as they say. To the author’s point, would an Israeli attack on the oil installations be an opportunity to re-think European energy policy, such as expanding nuclear and perhaps starting to frack gas.
Iran will only get stronger. Sooner or later it will have nuclear weapons and it already has ballistic missiles. A stated goal of the regime is the elimination of Israel. Image a 1000 missile day or a 1000 missile weak. Eventually the Israeli anti-missile assets become overwhelmed.
The anti-Israel ring of fire does not mind civilian casualties. People in the west get more upset. Hamas and Hezbollah put their weapons in, around and below civilian infrastructure. Iran sent children across mine fields in the 1980s during the Iran-Iraq war. Any complaints from the west?
Perhaps Israel is the front line for the western world in the fight against global jihad. It seems battles are taking place in the anglosphere with more Palestinian flags than banners of the local countries.
Its easy to say what Israel should not do. However, Israel will make a decision that will hopefully send a message to its enemies and deter them from doing more harm. I guess we’ll see.
“Would an Israeli attack on the oil installations be “good for the climate”, as they say”. That is an excellent point! I might bring it up in future discussions with the Green Left!
Ignore the propaganda – the Iranians just managed to make some very large craters in some of the most heavily defended sites in the world – including some rather large ones in the Negev near the Israeli’s Dimona nuclear facility. A normal government might be deterred by such demonstrations, but the Israeli regime wants to take all of us with them so will likely ‘retaliate’.
Israel should accept bombardment from ballistic missiles and ongoing threats to be nuked because Europeans are short sighted?
I’m not sure that the Israelis give a toss about the impact it would have on the US (after 5th November) or Europe but we will see. One consequence might be that the EU would tell the Irish Government to start exploring for oil and gas off our coast. That might (and should) happen anyway after the next election if the Greens are not in the next Government or even if they are.