Oil prices could soar if Israel attacks Iran’s energy infrastructure

Analysts told CNBC on Thursday that oil markets are becoming too complacent given the risk of major supply disruptions in the Middle East and warned that crude oil futures could rise above $200 a barrel.

This comes amid speculation that Israel is planning retaliatory strikes against Iran by targeting its oil infrastructure, which is likely to be a rude awakening for bearish energy market participants.

Iran, a member of the Organization of Petroleum Exporting Countries (OPEC), is a major player in the global oil market. It is estimated that up to 4% of global supply could be at risk if Iran’s oil infrastructure were targeted by Israel.

In an interview with CNBC’s “Street Signs Europe” on Thursday, Bjarne Schieldrop, senior commodities analyst at Swedish bank SEB, said heightened tensions in the Middle East could have dramatic consequences for markets.

“If… they really demolish Iran’s oil facilities and reduce exports by 2 million barrels, the next question in the market will now be what will happen in the Strait of Hormuz. Of course, that will add up,” Schieldrop said. He said there is a significant risk premium on oil.

Asked how much oil prices could surge in such a scenario, Schieldrop responded: “If we stop installations in Iran, it could easily go above $200.”

Located between Iran and Oman, the Strait of Hormuz is a narrow but strategically important waterway that connects oil producers in the Middle East to major markets around the world.

Oil prices have risen more than 4% since the start of the week as traders closely monitor rising geopolitical risks in the Middle East.

International benchmark Brent crude futures expiring in December were trading more than 2.1% higher at $75.50 a barrel on Thursday, while U.S. West Texas Intermediate crude futures were trading more than 2.3% higher at $71.75 in the session.

Israeli Prime Minister Benjamin Netanyahu on Tuesday pledged a strong response to Iran’s ballistic missile attack and insisted Tehran “will pay a price” for what he described as a “big mistake.” His comments came shortly after Iran launched more than 180 ballistic missiles toward Israel.

Iranian President Massoud Fezeshkian said Thursday during a visit to Qatar that his country is “not seeking war with Israel.” But he warned that Tehran would respond strongly to any further Israeli actions.

“It all depends on how the conflict deepens, and it goes without saying that Israel will retaliate after the recent Iranian attack. And that will probably happen within five days of the one-year anniversary on October 7.” said SEB’s Schieldrop.

“Are we going to have weak attacks like we saw in April and then it all quiets down? Or is it going to be a more violent attack with military installations, potentially nuclear installations and oil installations also on the table?” . “This is what is currently plaguing the market,” he added.

Energy analysts have warned of a bearish sentiment prevailing in markets even as rising tensions in the Middle East threaten to reach new boiling points.

“From an oil market standpoint, I think the market is too complacent right now,” Amrita Sen, founder and research director at Energy Aspects, told CNBC’s “Squawk Box Europe” on Thursday.

“And since Abqaiq in 2019, there have been no oil supply losses due to geopolitical risks.

She said geopolitical risks have not resulted in any actual supply losses since Saudi Arabia shut down half of its oil production in 2019 following a drone attack on the Abqaiq oil processing facility.

“This is why the market is exhausted,” she continued. “It was Abkaikh, it was Russia-Ukraine, but I think this is a little different.”

The attack on Saudi Aramco facilities by Yemen’s Houthi rebels in 2019 triggered a surge in oil prices at the time.

Asked about the possibility that Israel might launch retaliatory strikes against Iran’s energy infrastructure, Sen said the United States would be clear in its diplomatic message to the Jewish state.

“That’s obviously something that each side is talking about, right? The United States is also involved in this. I don’t think we can forget that we’re just a few days away from the U.S. election, so I think the message they’re sending is very clear: It’s also hitting our energy infrastructure. Do not strike any nuclear facilities,” Sen said.

Meanwhile, oil prices historically would have had “very different and violent reactions” to missile attacks and bombings in different countries in the Middle East, John Evans, an analyst at oil broker PVM, said in a research note published Thursday.

“Needless to say, anything around Israel historically arouses enthusiasm, but Iran’s involvement, which is more influential on the oil side, should appeal to the bulls,” Evans said.

He added, “The escalation of the war and its damage will have to be proven before oil market participants can shake off their overwhelming skepticism.”