Greg Priddy
The risks of an Iranian strike on Gulf energy assets have frequently been dismissed as “crying wolf.” Is the wolf finally at the door? With President Donald Trump apparently again facing a near-term decision point on whether to launch military strikes on Iran, the world oil market has taken notice, with global benchmark Brent crude oil settling at over $70 per barrel, the highest since July. This came amid a rather bearish consensus expectation of excess supply and building inventories this year. That reaction, which is still up only about 10 percent on concerns about Iran, seems justified, as there are plenty of reasons to see the risk of an actual supply disruption taking place as being significantly higher than in June, when Israel and Iran traded strikes for 12 days. The United States joined in on the last night of the campaign to hit hardened nuclear sites, which required bombs larger than what Israel could deliver.
The History of Supply Risk and Oil Prices. The relationship between perceptions of security-driven supply risk and oil prices has changed a bit since the shale boom began in the United States in the late 2000s. During the long price run-up on perceived scarcity in the mid-2000s, concerns related to Iran, pipeline bombings in Iraq, and outages in the Niger Delta in Nigeria frequently made substantial waves in the market. There were long periods when crude markets clearly carried a “risk premium” relative to where they would have been without those perceived risks, even if they had not yet materialized.
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