A full-blown conflict in the Middle East would potentially put at risk up to 12 MMbbl/d of oil, according to Oct. 17 report by Rystad Energy.

An Israel and Iran all-out regional war could choke the Strait of Hormuz and sharply drive up oil prices, Rystad’s Middle East Research Director Aditya Saraswat said in the report.  The fallout would also extend to crude oil projects that have yet to be completed and existing infrastructure that could come under fire.

“Tensions are persisting in the Middle East and the humanitarian toll is climbing. Energy market fundamentals have been largely unaffected to date, but this could change at a moment’s notice,” Saraswat said in the report. “Iran and Israel's conflict could severely impact gas exports and lead to delays in oil development projects.”

However, Rystad said that predicting the outcome of rising tensions between Iran and Israel remained challenging.

If the conflict remains largely a proxy war, critical oil and gas infrastructure such as pipelines, storage facilities or refineries is expected to remain safe from attacks, Rystad said. But an active war would see assaults on upstream facilities and other infrastructure.

Following Hamas’ Oct. 7, 2023, attack on Israel and subsequent outbreaks in the conflict, Israel’s gas production fell 7% for a short time as the Karish Field was shut-in. No direct attacks have been reported.

According to Rystad, Israel’s gas output rose 15% in 2023 and is expected to rise 5% in 2024, supported by the Karish Field.

However, escalating tensions with Iran could complicate the operations of London-listed Energean, which operates the Karish and Karish North gas fields in Israel. Furthermore, production from the Katlan fields (Athena and Zeus) is expected to start by 2027. Any significant unrest could delay start-up, Rystad said.

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Iran's oil production averaged 3.27 MMbbl/d in August. In the case of no direct attack, future production is expected to remain stable, though significant investments would be required by the National Iranian Oil Company (NIOC) to sustain production over the long term, Rystad said.

But any escalation between Israel and Iran could put nearly 1 MMbbl/d of Iranian oil production at risk, according to Rystad, especially if Iran blocks the Strait of Hormuz trade route.

A major portion of exports from the Middle East are directed to oil-importing Asian countries such as China, India, Japan and South Korea.

In such a scenario, the Asian countries would be forced to seek “alternative sources, potentially hampering supply chains, driving up costs and disrupting the energy supply chain,” Rystad said.

The unknown future of up to 12 MMbbl/d of oil may push Brent crude prices drastically higher, Rystad said.

The potential for further escalations in tensions has driven a 10% increase in oil prices since the start of October to the $80/bbl mark this week. However, prices have fallen below $75/bbl as concerns gradually eased and the demand outlook weakened, Rystad said.

Brent prices could be further impacted if Saudi Arabia rolls back its voluntary OPEC cuts and if there is a reduction in Libya’s oil production due to internal disturbances.

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