Brent crude surged past $100 after U.S. strikes hit Iranian refineries, cutting output by 800,000 bpd. The Strait of Hormuz risk and potential retaliation on Saudi targets loom.
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Oil prices surged past $100 a barrel Monday after the U.S. military struck Iranian targets from the Caspian Sea to the Persian Gulf, widening a conflict that has already reshaped crude supply expectations. Front-month Brent futures settled at $102.70, up 6.4%, the highest close since August 2022.
The strikes hit refineries and export terminals in Khuzestan and Bushehr provinces, two oil traders with direct knowledge of the damage said. Iran's oil ministry said production capacity had been cut by roughly 800,000 barrels a day, or about 20% of the country's pre-strike output. The ministry did not give a timeline for repairs.
Exposure runs through three main channels. The Strait of Hormuz, through which about 20% of the world's seaborne crude passes, sits within range of Iranian missile batteries. A second trader said insurance premiums for tankers loading in the Gulf had already tripled overnight. Third, Tehran could respond by targeting the Saudi oil infrastructure at Ras Tanura or the Abqaiq processing plant, a scenario that Goldman Sachs described as a "tail risk that could push Brent above $130."
Timeline is uncertain. The Pentagon said the strikes were a single operation, not the start of a sustained campaign. But Iran's supreme leader, Ayatollah Khamenei, vowed retaliation in a state television address Monday. U.S. Central Command said it had detected no new ballistic missile launches as of Tuesday morning local time.
Affected assets include crude oil futures and options, Gulf-region tanker and shipping equities, and the Indian rupee, which imports over 80% of its oil. The rupee fell 1.2% against the dollar Monday, the biggest single-day drop since September 2022. India's benchmark stock index, the Nifty, fell 1.8% as fuel retailers and airlines lost ground.
What would reduce the risk: a diplomatic off-ramp, such as the resumption of Iran nuclear talks, or a ceasefire negotiated through Oman or Qatar. No such talks are publicly scheduled. What would make it worse: a successful Iranian missile strike on a Saudi or UAE oil facility, or a closure of the Strait of Hormuz. The Pentagon said it had deployed additional naval assets to the region, including the USS Dwight D. Eisenhower carrier strike group.
For traders, the next concrete marker is the weekly U.S. Energy Information Administration crude inventory report Wednesday, which will show whether the Biden administration has released additional barrels from the Strategic Petroleum Reserve. The SPR currently holds 345 million barrels, the lowest since 1983. A release could cap prices temporarily, but would not address the supply disruption at the source.
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