Oil prices fell sharply Monday after a missile strike by Iran on a U.S. airbase in Qatar left no reported casualties, raising investors’ hopes that there might be a path to de-escalate the conflict.
U.S. crude oil futures fell $4.53, or 6.13%, to $69.31 per barrel by 2:18 p.m. ET. Global benchmark Brent was last down $4.68, or 6.08%, at $72.33.
Iran launched a missile strike on the Al-Udeid Air Base in Qatar in retaliation for U.S. strikes on its most important nuclear sites over the weekend, according to a NBC News translation of Iranian state TV.
Qatar subsequently confirmed that the Iranian strike did not cause any casualties, according to a spokesperson for the Gulf kingdom’s foreign ministry. Qatar’s air defenses intercepted the Iranian missiles, the spokesperson said.
Oil prices had jumped on Sunday evening in response to the U.S. joining Israel’s campaign against Iran by bombing the nuclear sites. Brent rose more than 5% Sunday to crack $81 before easing. WTI also reached its highest levels since January before pulling back.
“The market is pricing in a scenario where things de-escalate gradually,” Jorge Leon, head of geopolitical analysis at Rystad Energy, told CNBC’s “Worldwide Exchange” on Monday.
“The worrying thing is that the other extreme scenario where there is a threat to close the Strait of Hormuz is still realistic,” Leon said. “Things could go south very, very rapidly.”
Strait of Hormuz
The worst-case scenario for the oil market would be an attempt by Iran to close the Strait of Hormuz, according to energy analysts. Some 20 million barrels per day of crude, or 20% of global consumption, flowed through the strait in 2024, according to the Energy Information Administration.
Iranian state media reported that Iran’s parliament had backed closing of the strait, citing a senior lawmaker. However, the final decision to close the strait lies with Iran’s national security council, according to the report.
U.S. Secretary of State Marco Rubio has warned Iran against attempting to close the strait. It would be “economic suicide” for the Islamic Republic because their exports pass through the waterway, Rubio said.
“We retain options to deal with that,” Rubio told Fox News in an interview Sunday. “It would hurt other countries’ economies a lot worse than ours. It would be, I think, a massive escalation that would merit a response, not just by us, but from others.”
Iran produced 3.3 million bpd in May, according to OPEC’s monthly oil market report released in June, which cites independent analyst sources. It exported 1.84 million bpd last month, with the vast majority sold to China, according to data from Kpler.
Rubio called on China to use its influence to prevent Tehran from closing the strait. About half of China’s waterborne crude oil imports comes from the Persian Gulf, per Kpler.
“I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil,” Rubio said.
Investors are also watching the odds of a further destabilization of the Iranian regime as a result of U.S.-Israeli hostilities, given the example of the long-spanning impact that the 2011 NATO-led ousting of Muammar Gaddafi had on Libya’s supplies.
Regional tensions
Tensions have likewise ramped up in neighboring Iraq, OPEC’s second-largest producer, where pro-Tehran militias have previously threatened Washington, should it target Iran’s supreme leader, Ayatollah Ali Khamenei.
On Sunday, Iran’s Revolutionary Guard warned that “the US bases in the region are not their strength but rather their greatest vulnerability” without specifying particular sites, according to Google-translated comments carried by Iranian news agency Fars.
Fledgling, but revived diplomatic ties between former rivals Iran and Saudi Arabia could meanwhile diffuse the possibility of disruptions in the supply of the world’s largest crude exporter.
“The Kingdom of Saudi Arabia is following with deep concern the developments in the Islamic Republic of Iran, particularly the targeting of Iranian nuclear facilities by the United States of America,” the Saudi foreign ministry said on Sunday. Riyadh, a close U.S. ally in the Middle East, has limited its involvement in the Iran-Israel offensives.
Back in 2019 — four years before resuming diplomatic relations with Iran — Saudi Arabia’s oil installation facilities at Abqaiq and Khurais sustained damage during attacks that were claimed by the Houthis, but for which Riyadh and the U.S. said Iran bore responsibility. Tehran denied involvement.
At the resumption of Israeli-Iranian fire last week, the International Energy Agency’s chief Fatih Birol said the institution was monitoring the developments and that “markets are well supplied today but we’re ready to act if needed,” with 1.2 billion barrels of emergency stocks on standby.
