Oil futures fell Monday as investors brushed off the risk of Iran disrupting Middle East crude supplies, following a direct U.S. attack on the Islamic Republic’s key nuclear sites over the weekend.
U.S. crude oil fell 84 cents, or 1.14%, to $73 per barrel by 10:30 a.m. ET. Global benchmark Brent was last down 81 cents, or 1.05%, at $76.20.
Oil prices fell to session lows after President Donald Trump demanded that “everyone” keep oil prices lower. It was unclear who he was addressing, though he was likely calling on the U.S. oil industry to boost production.
Both benchmarks were well off their highs seen overnight. Brent had jumped more than 5% to crack $81 before easing. WTI also reached its highest levels since January before pulling back.
“The market is pricing in a scenario where things de-escalate gradually,” Jorge Leon, head of geopolitical analysis at Rystad Energy, told CNBC’s “Worldwide Exchange” on Monday.
Investors are now waiting to see how Iran will respond to the unprecedented U.S. strikes. For now, the market appears to be betting that Tehran will not disrupt crude supplies because it would likely provoke a significant response from the U.S. that could imperil the regime.
But Iran’s foreign minister said Sunday the Islamic Republic reserves “all options” to defend its sovereignty.
“The worrying thing is that the other extreme scenario where there is a threat to close the Strait of Hormuz is still realistic,” Leon said. “Things could go south very, very rapidly.”
Strait of Hormuz
The worst-case scenario for the oil market would be an attempt by Iran to close the Strait of Hormuz, according to energy analysts. Some 20 million barrels per day of crude, or 20% of global consumption, flowed through the strait in 2024, according to the Energy Information Administration.
Iranian state media reported that Iran’s parliament had backed closing of the strait, citing a senior lawmaker. However, the final decision to close the strait lies with Iran’s national security council, according to the report.
U.S. Secretary of State Marco Rubio has warned Iran against attempting to close the strait. It would be “economic suicide” for the Islamic Republic because their exports pass through the waterway, Rubio said.
“We retain options to deal with that,” Rubio told Fox News in an interview Sunday. “It would hurt other countries’ economies a lot worse than ours. It would be, I think, a massive escalation that would merit a response, not just by us, but from others.”
Iran produced 3.3 million bpd in May, according to OPEC’s monthly oil market report released in June, which cites independent analyst sources. It exported 1.84 million bpd last month, with the vast majority sold to China, according to data from Kpler.
Rubio called on China to use its influence to prevent Tehran from closing the strait. About half of China’s waterborne crude oil imports comes from the Persian Gulf, per Kpler.
“I encourage the Chinese government in Beijing to call them about that, because they heavily depend on the Straits of Hormuz for their oil,” Rubio said.
Investors are also watching the odds of a further destabilization of the Iranian regime as a result of U.S.-Israeli hostilities, given the example of the long-spanning impact that the 2011 NATO-led ousting of Muammar Gaddafi had on Libya’s supplies.
Regional tensions
Tensions have likewise ramped up in neighboring Iraq, OPEC’s second-largest producer, where pro-Tehran militias have previously threatened Washington, should it target Iran’s supreme leader, Ayatollah Ali Khamenei.
On Sunday, Iran’s Revolutionary Guard warned that “the US bases in the region are not their strength but rather their greatest vulnerability” without specifying particular sites, according to Google-translated comments carried by Iranian news agency Fars.
Fledgling, but revived diplomatic ties between former rivals Iran and Saudi Arabia could meanwhile diffuse the possibility of disruptions in the supply of the world’s largest crude exporter.
“The Kingdom of Saudi Arabia is following with deep concern the developments in the Islamic Republic of Iran, particularly the targeting of Iranian nuclear facilities by the United States of America,” the Saudi foreign ministry said on Sunday. Riyadh, a close U.S. ally in the Middle East, has limited its involvement in the Iran-Israel offensives.
Back in 2019 — four years before resuming diplomatic relations with Iran — Saudi Arabia’s oil installation facilities at Abqaiq and Khurais sustained damage during attacks that were claimed by the Houthis, but for which Riyadh and the U.S. said Iran bore responsibility. Tehran denied involvement.
At the resumption of Israeli-Iranian fire last week, the International Energy Agency’s chief Fatih Birol said the institution was monitoring the developments and that “markets are well supplied today but we’re ready to act if needed,” with 1.2 billion barrels of emergency stocks on standby.
(Source)