Israeli attacks on Iran’s energy assets yet to spook oil markets

• Exports not yet affected
• Tankers continue to travel
• Damage affects Iran’s domestic supply

Israel’s attacks this weekend on Iranian energy assets serving local consumption will not roil markets because they do not affect export flows and have yet to repel tankers from traversing regional waters, analysts have said.

After striking Iranian nuclear and military sites on Friday, Israel hit its South Pars 14 gas processing complex, the nearby Fajr Jam gas facility and oil storage tanks near Tehran. 

Fire at the facilities was quickly contained, the oil ministry said, but the extent of damage is as yet unclear. Iran, Opec’s third biggest producer, pumps 3.3 million barrels per day and exports more than 90 percent of its crude from Kharg Island.

Brent rose above $76 per barrel on Monday, but has since fallen back. On Friday, Brent touched an intraday high of $78 per barrel, the biggest jump since March 2022, but it closed at $74 per barrel.

“So far, the number of crude oil tankers transiting the Persian Gulf, Gulf of Oman and Arabian Sea has remained relatively stable, suggesting normal passage through the region despite the ongoing missile exchanges,” Homayoun Falakshahi, a senior analyst at Kpler, told AGBI. 

“We have seen tankers heading to Kharg Island slightly divert away however, suggesting lower loadings from the port in the coming days. This could be a precautionary measure taken by Iran.”

In the year to date Iranian exports out of Kharg Island are at 1.6 million barrels per day, based on Kpler data.

The escalation of war with the targeting of energy facilities is unlikely to impact prices or trade flows unless there is an attack on Gulf assets or a major disruption in the strategic Strait of Hormuz from where 20 percent of global oil is transported, analysts said.

“Some call it cynical markets’ view, others ‘geopolitical crisis 101’, but markets need further escalation in the Middle East to call for a major geopolitical shock,” Christian Gattiker, head of research at Julius Baer, said in a note.

The attack on the gas processing facilities and storage tanks is directed at Iran’s domestic markets because South Pars accounts for about 2 percent of the country’s supply of LPG, an oil byproduct mainly used for heating, cooking and the petrochemical industry, according to Kpler estimates.

The damage to tanks also affects only domestic markets because they store fuel consumed locally, said Falakshahi.

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“Israel hit such an installation to issue a warning to Tehran and to indicate they could hit other, more critical infrastructure if needed, but also to potentially worsen the domestic gas and power situation,” said Falakshahi.

Iran, which has been under US sanctions since 2018, heavily relies on oil and gas revenue for its spending needs.

“Without a rapid broadening – think: Strait of Hormuz, direct US or Saudi involvement, or widespread proxy engagement – the market is unlikely to reprice beyond the initial risk premium. Until then, it remains a tactical rather than strategic event, offering a good excuse for traders to take profits and reassess positioning,” said Gattiker.