Can Middle East Stability Keep Oil Supply Intact Amid Rising Tensions?

The Israel-Iran conflict intensified with Iranian missile strikes on June 15, 2025, at 8:00 PM EST, and Israeli counterattacks targeting Iranian nuclear facilities. Despite this, the supply of crude oil remains intact, with Brent futures trading at $75.76 per barrel on June 16, 2025, at 2:23 AM EST. Iran, producing 3.7 million barrels per day (bpd), exports 1.4 million bpd, primarily to China. Disrupting its own exports would cripple Iran's economy, already strained by U.S. sanctions. Iran's restraint suggests a strategic choice to maintain revenue streams amid heightened tensions.

However, targeted Israeli strikes on refineries could pressure Iran's domestic fuel supply, potentially provoking retaliatory actions against regional oil infrastructure. Iran's ability to prioritize economic stability over escalation remains critical to supply continuity.

Will the Strait of Hormuz Remain Open?

The Strait of Hormuz, handling 20% of global oil flows, approximately 20 million bpd, remains a focal point. Despite Iran's control over this chokepoint, historical precedent shows no full closures, even during the Iran-Iraq War. Iran's recent seizure of a tanker in January 2025 signals capability but not intent to block the strait, which would also halt its own exports and alienate allies like Qatar, a major LNG exporter.

A blockade would trigger U.S. military intervention and strain relations with China, Iran's primary oil buyer. The muted 5.8% rise in Dubai swaps ($71.03 per barrel) versus Brent's 7% jump on June 13, 2025, at 2:00 AM EST, suggests physical markets are less alarmed, reinforcing expectations of an open strait.

ALSO READ | How Are Israeli Airstrikes Driving Oil Price Surges and Global Inflation Risks?

Can OPEC+ Buffer Potential Disruptions?

OPEC+ holds 5 to 6 million bpd of spare capacity, led by Saudi Arabia and the UAE, capable of offsetting disruptions. A "small disruption" (0.5 to 2 million bpd) would push Brent to $93 to $102, while a "large disruption" (6 to 8 million bpd) could hit $140 to $157. Saudi Arabia's readiness to abandon its $100 price target and OPEC+'s planned 411,000 bpd output increase in July 2025 signal intent to stabilize markets. However, spare capacity deployment depends on coordinated action, which past OPEC disarray could complicate.

Non-OPEC supply growth, particularly U.S. production at 13.2 million bpd, further cushions markets. This well-supplied environment supports current stability but remains vulnerable to prolonged conflict.

Regional Cooperation Mitigates Supply Risks

The 2023 China-brokered Saudi-Iran agreement reflects a regional desire to contain tensions, bolstering oil supply stability. Saudi Arabia and Qatar's reliance on Hormuz for exports aligns their interests with maintaining open waterways. China's quiet diplomacy, as a major buyer of Gulf oil, discourages disruptions that would harm its economy.

Did you know?
In 1973, the Arab oil embargo reduced global oil supply by 7%, spiking prices from $3 to $11 per barrel, demonstrating the Strait of Hormuz's critical role in past crises.

Geopolitical Restraint Preserves Market Confidence

Israel's emphasis on non-oil Iranian infrastructure, along with the U.S.'s conditional engagement only in response to direct attacks on American interests, serves to mitigate risks to crude production. Physical oil markets' tempered response, with Dubai swaps rising less than Brent, reflects trader confidence in supply continuity. However, a sustained conflict could undermine this confidence, particularly if it targets infrastructure such as Iran's Kharg Island terminal.

What Lies Ahead for Middle East Oil Supply?

Despite Israel-Iran clashes on June 15, 2025, at 8:00 PM EST, the absence of oil supply disruptions underscores Middle East resilience, with Brent at $75.76 per barrel on June 16, 2025, at 2:23 AM EST. Iran's economic reliance on exports, the open Strait of Hormuz, and OPEC+'s spare capacity maintain stability, supported by regional and Chinese diplomacy. Yet, risks persist if attacks target oil infrastructure or provoke a Hormuz blockade. With global markets well-supplied but on edge, the region's ability to avoid escalation is paramount. Can Middle East stability endure to keep oil flowing freely?