Rabobank’s Senior Market Strategist Ben Picton notes Brent crude is firmer as markets react to US strikes on Iranian military assets near key export infrastructure on Kharg Island and renewed regional attacks on Oil assets. Picton highlights heightened risks around the Strait of Hormuz and Red Sea shipping, with disruptions seen as a major potential supply shock for global energy markets.

Kharg Island strikes keep risk premium elevated

"Brent crude is bid again this morning as markets digest the dump of news over the weekend relating to the Iran war. On the bullish side for crude was the US decision to bomb Iranian military assets on Kharg Island – the Persian Gulf port where up to 90% of Iranian oil exports are typically loaded onto tankers."

"Speculation is rife that the marines could be used to secure oil infrastructure on Kharg Island, or perhaps to help clear the mountains north of the Strait of Hormuz of Iranian belligerents (the latter seems less likely). Either would be a case of ‘boots on the ground’ and interpreted as a major escalation. Iranian officials have said over the weekend that they would respond in kind to any attacks on their oil infrastructure."

"Disruptions to Red Sea shipping – which the Houthis have proven adept at over the years – would close off the release valve of the Saudi East-West pipeline that is capable of redirecting 5-7mn bbl/day to offset the ~18-20mn bbl/day supply interruption."

"The strikes on Kharg Island – which is the main port of origin for a large slice of China’s oil imports – also raises the prospect of Chinese influence in central Asia being severely curtailed. The US is a mostly self-sufficient net energy exporter who suddenly occupies several key maritime chokepoints for Chinese energy imports."

"To appreciate this disruptive power fully, it must be recognised that the Iran crisis goes far beyond energy and the supply shock will reverberate through everything from petrochemicals, to agriculture to pharmaceuticals and beyond."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)