The GCC hydrocarbons are once again caught in the web of political tensions.However, it is premature to anticipate that oil prices will reach the psychological threshold of $100 per barrel (pb) as it was in the early days of Spring 2022 or even go above $94pb as it was in the first days after the HAMAS attack on Israel in October 2023. On the contrary, the security of oil supplies by the GCC member states can be one of those factors that will prevent both Israel and Iran from going into a full-fledged conflict
So far, the rise in oil prices caused by the recent intensification of the regional conflicts was modest: Nasrallah's death ‘cost’ the market about one totwo dollars of price surplus for oil, while Iran’s airstrike and subsequent promises by the Israeli government to retaliate shortly pushed the prices up by seven dollars. Moreover, on 26 October, the Israeli carefully measured response even led to a slight fall in oil prices as it showed to the market watchers that – despite all promises - Tel Aviv is not ready to target Iranian oil and gas facilities .
Indeed, damaging Iran’s infrastructure itself would not be a disaster for the global oil market. Iran currently exports between 1.5 and 1.8 million barrels per day, which represents less than 2% of global oil demand. Moreover, OPEC+ has a spare capacity of approximately 5.6 million barrels per day, and the cartel aims to increase output starting December. If Iranian oil were to be removed from the market, it could be absorbed by Russia and Saudi Arabia, particularly in the Chinese market. Some experts suggested that oil prices could rise by at least $5 per barrel under certain scenarios, but the impact on the market could be short-lived, depending on the extent of damage to Iranian infrastructure and the speed with which other placers would be ready to compensate Iran’s absence. Not to say that, in general, the current trends are pushing oil prices down. Under these circumstances, the market watchers concerns regarding the potential Israeli airstrike against Iran’s oil and gas infrastructure were not baseless: such a strike would seriously hit Iran’s economy while not causing much of a negative reaction to the oil consumers around the globe.
Yet, the Israeli government presumably faced considerable pressure to avoid escalation (including that from the US side). And that's there the factor of the GCC oil steped in: Iran's subsequent retaliatory actions could target the security of the GCC oil and gas infrastructure. The experience of 2019 Abqaiq and Khurais attacks and some other incidents afterwards clearly showed that oil and gas infrastructure of the Arab monarchies of the Gulf is in the direct outreach of Tehran and its proxies. In this case Iran can easily threaten the flow of about 20 million barrels of oil and oil products per day and 20% of global LNG flows
passing through the Strait of Hormuz, a vital chokepoint for oil and gas exports. If Iran were to retaliate by targeting regional infrastructure, the resulting disruption could drive oil prices up significantly as the immediate compensation of these barrels in the market is hardly possible. Such an outcome would not be in anyone's interest, including both oil producers and consumers. It would adversely affect the global economy, which is still recovering from the impacts of COVID-19, sluggish economic growth, and the consequences of the Russian invasion of Ukraine. High oil prices could destabilize political and economic conditions worldwide, including the upcoming U.S. presidential campaign. What's more important is thatsuch market destabilization would come with a high political price for both Iran and Israel as the main instigators.
All in all, the situation remains delicate. While various scenarios are on the table, a full-blown conflict appears less likely than a continuation of measured exchanges between the parties involved. Both sides may still engage in limited strikes to demonstrate capabilities without inflicting substantial damage on each other. The GCC hydrocarbons remain too important and irreplaceable for the global economy to try to put them at risk.