The most radical scenario for the global oil market has been announced: $150-200 per barrel

Iran may cut off supplies of “black gold” to Europe

Today, the global oil market is in anxious anticipation of changes for the worse. The other day, the price of the reference grade Brent, after a three-week pause, exceeded $80 per barrel. It was prompted to do this by US and British missile attacks on Houthi groups in Yemen. Analysts unanimously spoke about the sharply increased risks of expanding the conflict and involving Iran in it. For Russia, the situation is fraught with additional logistics costs – so far to approximately the same extent as for other producers of raw materials.

For the global cargo transportation market, events in the region are developing so unpredictably that no one will be left behind. Today, about 12% of international container traffic and 10% of oil shipments travel through the Red Sea, which connects to the Mediterranean through the Suez Canal. For Russia, the route is of strategic importance: more than half of Russian sea oil exports, or about 2 million barrels per day (b/d), including Urals and Arctic grades, pass through it.

Let us recall that the Yemeni Houthis announced a transport blockade against ships associated with Israel or traveling to its ports in early December last year. Since then, they have attacked more than 20 tankers, leading to a reduction in transit in the region. Last week, the conflict entered a stage of obvious escalation: the United States and Great Britain launched a series of missile attacks on targets in four provinces of Yemen. In response, the Houthis may intensify their attacks to cut off any supply of raw materials through the area. Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, discusses the most likely scenarios for further developments.

– At the moment, we cannot talk about any super-radical changes in the global oil market: after the US and British attacks on the Houthi positions, literally several tankers changed their routes, which took a roundabout route – through the Cape of Good Hope to South Africa. However, the potential for radicalization, escalation of the conflict, and its impact on shipping in the Red Sea, the Suez Canal and the Bab el-Mandeb Strait is very high. Going around Africa means an additional 10-14 days of travel, additional fuel costs, a sharp increase in freight costs and, accordingly, a shortage of tankers. So far, the situation has affected only Western carriers: ships of Russian, Iraqi, Libyan, and Chinese raw materials companies continue to use the Suez Canal. However, it is obvious that logistics will become more expensive for everyone, including Russia.

– Already in 2022, it has become more expensive for Russia due to sanctions. So what, now another round of costs is expected?

– Sanctions forced us to leave the European market for the Asian ones. We ship oil to India even from the Baltic ports, using many more ships, since the logistics arm has significantly lengthened. The story is roughly the same with Iraq, Saudi Arabia, the UAE and other countries that were previously the main suppliers of energy to Asia, and in 2022 reoriented themselves to Europe. Today, the problem with transit through the Red Sea has been added to this. Moreover, there are considerable risks for Middle Eastern producers. When the Houthis learned about the missile attack being prepared on them, they warned neighboring countries (Saudi Arabia, Qatar, the Emirates): do not even think about providing your airspace for the passage of American and British military aircraft, or we will take this as a declaration of war. Accordingly, there is a risk that the Yemeni Houthis will deliberately attack tankers with Saudi oil or Qatari gas carriers, and they will have to develop a route around Africa. In addition, the Houthis may begin to launch missile attacks on the oil and gas infrastructure of neighboring states, where in this case production will be reduced.

– What are the consequences of hypothetically drawing Iran into the conflict?

– No one today can guarantee that this will not happen. The most radical scenario will be realized if the Iranians close the Strait of Hormuz, which they have repeatedly threatened to do. This strategically important artery connects the Persian Gulf in the southwest with the Gulf of Oman in the southeast and beyond to the open ocean. About 20 million barrels of oil pass through it per day, which is about 20% of the total global traffic volume. Plus – all LNG is from Qatar. Then the world energy and economy will experience a monstrous shock, prices could soar to $150-200 per barrel. There will also be a shortage of gas; prices can run into thousands of dollars per thousand cubic meters. However, such force majeure will not last long, since the market simply cannot digest such expensive energy resources, and demand will inevitably go down.

– How might the situation affect Russian oil exports?

– Russia absolutely does not need it, since Asian sales markets will also decline. The only advantage for us is good partnership relations with Iran. I think that now the leadership of the Russian Federation will negotiate with him so that the Yemeni Houthis (who receive weapons and economic assistance from the Iranians) are more selective in considering targets for attack. Tankers carrying Russian oil need certain security guarantees. The most profitable option for us, but unrealistic, is the following: the bulk of carriers go around Africa, while we still use the Suez Canal, saving on logistics. It is clear that the margin would be greater.