Iran's oil export slowdown continues ahead of expected Israel strike

Iran's crude export loadings remained well below normal levels Oct. 10 as oil markets continued to brace for an expected retaliatory strike by Israel on Iran that could target the country's oil infrastructure and disrupt Middle Eastern oil supplies.

Crude loadings from Iran averaged 816,244 b/d in the week to Oct 9, according to preliminary observed and estimated tanker movements in S&P Global Commodities at Sea. A 2 million-barrel cargo of Iranian crude was seen leaving Iranian waters Oct. 9, the second VLCC crude cargo in four days after an apparent hiatus of VLCC liftings since Sept. 28, when the geopolitical conflict between Iran and Israel escalated.

Iran normally ships seven to 10 crude cargoes each week with export flows averaging 1.7 million b/d so far this year, up from 1.1 million b/d in 2022, according to the data.

The export slowdown from Iran comes after satellite images circulated on social media Oct. 3 appeared to show tankers leaving Kharg Island, Iran's top crude terminal that handles about 90% of its exports. Traders said Iran may have been keen to move unladen tankers away from their anchorages at Kharg Island to avoid damage from a potential Israeli strike.

Iran's oil minister Mohsen Paknejad visited Kharg Island on Oct. 6. to hold talks with a naval commander, according to official press reports. The visit marked the first to the oil terminal by a minister in 16 years, indicating the sensitivity of the situation to Iran's key oil facilities.

Fears of a major escalation in the conflict hitting regional oil supplies were sparked Oct. 3 when US President Joe Biden said the US was discussing potential attacks on Iranian oil facilities with Israel. Iran's military head responded saying Tehran would hit back harder at Israel with a "stronger response," if attacked.

Iran's oil ministry has declined to comment on any disruption to recent oil exports.

Reprisal fears

Most of Iran's crude flows head to buyers in Singapore and China, where the bulk of any supply disruption would be felt If Iran's oil facilities are attacked. But Iran has threatened wider oil markets in the past by attacking shipping and laying mines in the Strait of Hormuz, through which almost 18 million b/d of crude and products transited during the first half of 2024. Analysts see any major shutdown of oil flows through the chokepoint as unlikely.

Brent crude futures rose sharply on Oct. 10 after concerns over Hurricane Milton's impact on US demand subsided and markets refocused on the potential impact of a full-blown war between Israel and Iran. According to reports, Israel's security cabinet was set to vote that day on a response to Iran's Oct 1. missile attack, prompting concern that an Israeli return strike on Iran could be imminent. At 1655 GMT, front-month Brent was trading at $79.31/b, up 3.6% day on day. Platts, a unit of S&P Global Commodity Insights, assessed Dated Brent, the physical oil benchmark, at $77.665/b on Oct. 9, down from a recent high of $81.20/b on Oct. 7.

"Should Israel’s reprisal target Iran’s mid/upstream energy infrastructure (more significant to global markets), than its downstream assets (more significant for the domestic Iranian market), then prospects of another tit-for-tat retaliatory move by Iran may witness oil prices leapfrog higher," oil analysts at Japan's MUFG bank said in an Oct. 10 note.

The bank said, however, that any spike in global crude prices would likely be limited due to the large, 6 million barrels of spare production capacity that OPEC+ producers could bring onstream if needed.

"Should core OPEC+ producers have an inability to export their barrels due to potential disruptions to tanker traffic in the Strait of Hormuz, there will likely be a significant and coordinated release of Strategic Petroleum Reserves (SPR) by the US, Europe and Japan to prevent a much larger sustained price spike and ensure the security of supply," the bank said.

Oil analysts at Goldman Sachs said Oct. 8 that they see $10-$20/b of upside to Brent "at the peak" in the case of disruptions in Iranian production.