Saudi and UAE oil may offset any Iran disruption, analysts say

• Iranian oil faces threats
• Saudi Arabia and UAE could fill gap
• Strait of Hormuz vital link

Saudi Arabia and the UAE can potentially replace lost Iranian oil supply, but heightened military activity in the Persian Gulf will make it difficult to plug any shortages during Iran-Israel tensions, analysts say.

Israel attacked Iranian nuclear and military sites on Friday, pushing oil prices to an intra-day high of $78 per barrel – the biggest jump since March 2022 – but prices have since pared gains.

“There have been threats to Iran’s production and oil terminals in the past, and striking Kharg Island would impair Iran’s oil exports,” says Harry Tchilinguirian, group head of research at Onyx Capital Group.

“However, the focus is on Iran’s nuclear programme and uranium enrichment.”

Any potential attack on the Kharg Island terminal – located 25 km off the coast of Iran – will seriously disrupt supply because it accounts for about 90 percent of Iranian crude exports, analysts say. Iran added about 2 million barrels in capacity at Kharg in May.

Saudi Arabia and the UAE are Opec’s biggest and fourth-largest producers respectively. They hold the highest spare capacity among Opec members and together can technically help to plug Iranian oil losses from any potential Israeli attack.

“Saudi Arabia and the UAE can very quickly ramp up production in a matter of 30 days, and could offset any significant losses of Iranian production,” says Jorge Léon, head of geopolitical analysis at consultancy Rystad Energy.

“But increasing military tensions (in the Gulf) could make it difficult for the export of Saudi and Emirati crude.”

All eyes are on the strategic Strait of Hormuz chokepoint, through which around 20 percent of the global oil and liquefied natural gas supply is transported, according to the US Energy Information Administration.

Iran, Opec’s third-largest producer, has been able to increase its output, despite the US withdrawal from a nuclear pact in 2018 and the subsequent re-imposition of sanctions on its energy sector. 

In 2024, Iranian oil production rose 13 percent year on year to 3.3 million barrels per day, according to secondary sources quoted in Opec’s monthly oil reports.

“If Iran responds by disrupting oil flows through the Strait of Hormuz, targeting regional oil infrastructure, or striking US military assets, the market reaction could be much more severe, potentially pushing prices up by $20 per barrel or more,” says Rystad Energy’s Léon.

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Saudi Arabia exports the most oil and condensate (a light oil) through the strait. It and the UAE are the only two regional countries with alternative export routes.

Qatar exports almost all of its LNG, while and Kuwait and Iraq export most of their oil via the strait.

Despite numerous Iranian threats to close off the Strait of Hormuz, oil and gas traffic through the chokepoint has only been disrupted during various conflicts and never closed.

This was the case even during the 1980-1988 Iran-Iraq war, when several tankers and energy facilities were attacked.

“While the closure of the Strait of Hormuz is possible, it would impact Iran’s neighbours and isolate it,” says Tchilinguirian. “The more likely retaliatory action is to be focused on Israel, with the US officially not involved.”