The geopolitical instability in the Middle East often leads to volatility in oil markets across the world. Any disruption in oil production or transportation in the region could lead to supply shortages, impacting prices globally. So, will a direct Israel-Iran war affect oil prices?
Middle East accounts for 30% of the global crude oil production. Among the top 10 oil-producing countries of the world, five are in Middle East. Of which, Saudi Arabia is the largest oil producer, and ranked number two, contributing over 12% of the global crude production. Iran is at the third position, with a global share of 3.3%.
Tensions between Israel and Iran have escalating after the latter launched more than 300 drones and missiles from its territory towards Israel over the weekend. However, the effect on oil markets has been muted.
Brent crude prices rose to a six-month high of $92.18 a barrel on Friday after Israel’s allies warned about the Iran’s retaliatory attack is imminent after Israel struck a building in Iranian consulate in Syria’s Damascus on April 1. But after Israel evaded missile attack by Iran, analysts hope that “this is just a one-off”, and not the beginning of a war.
The members of Opec, the oil producing cartel, have the capacity to produce another 6 million barrels a day, according to Goldman Sachs, as quoted by The Guardian.
What If There is a War?
Reports suggest before Iran’s missile strike on Israel, there were limited or no consequences from the attack on Israel by Hamas last October on the energy market. Israel and Palestine are anyway not major energy producers.
But since Iran is the founding member of Opec, a war with Israel in this case would have an effect on the energy market, according to the International Energy Agency (IEA).
So, any direct hit to Iran’s oil production would lead to price rise. In 2023, Iran became the world’s second largest oil producer after US, according to IEA. It has predicted that Iran would produce 280,000 more barrels a day this year compared with last.
“Any attack on oil production or export facilities in Iran would drive the price of Brent crude oil to $100, and the closure of the Strait of Hormuz would lead to prices in the $120 to $130 range,” said Andy Lipow, president of Lipow Oil Associates, as quoted by CNBC.
Impact on Indian Workers and Nationals in Iran, Israel
Around 7 million Indians work in the Gulf countries, and send more than $90 billion in foreign exchange to India annually. In the event of the Israel-Iran war in Middle East, Indian workers would be impacted.
India has a strategic relationship with Israel and a historic one with Iran, according to senior foreign affairs analyst Umashankar Singh. He said Iran was the second-largest supplier of oil to India before sanctions were imposed on it due to its nuclear programme. India has not bought oil from Iran for the past four years but still share close relations with it.
India had issued an advisory to its citizens on Friday not to travel to Iran or Israel due to heightened tensions. It asked all Indian nationals living in those countries to observe “utmost precautions” for their safety.
According to the Ministry of External Affairs (MEA), there are 4,000 Indian immigrants in Iran, while 18,000 Indians are working in Israel, many of them as caregivers, according to The Hindu. India has a large diaspora in Israel of around 97,467, according to the MEA.
A Hindustan Times report, however, pointed out that the advisory meant no more Indian workers will be able to travel to Israel under a government-to-government (G2G) arrangement to work in the construction sector.
The first batch of 64 Indian workers travelled to Israel on April 2 and some 6,000 more were expected to be sent during April and May to help Israel’s construction sector overcome a labour shortage created by the withdrawal of work permits for Palestinian workers.
Another 900 Indian construction workers travelled to Israel in recent months under business-to-business arrangements. Last week, the Indian side had urged Israeli authorities to ensure the safety of Indian nationals being sent to work in the construction sector.
Iran on Saturday captured a Portuguese-flagged cargo ship MSC Aries near the Strait of Hormuz. The Israeli-affiliated vessel has 17 Indian crew members and was en route to the port of Nhava Sheva in Mumbai. MSC Aries is now under the control of Iran’s Islamic Revolutionary Guards. The safety of the Indian crew is a big worry for India.
External affairs minister S Jaishankar held talks with his Iranian counterpart Amir Abdollahian and raised the issue. Tehran has issued that Indian representatives will soon be allowed to meet the Indian crew members of MSC Aries.