Israel Strikes Iranian Oil Depots, Deepening Supply Shock
The conflict between Israel and Iran has sharply escalated after Israeli strikes hit multiple oil depots in Tehran, causing massive fires. Iran has retaliated with new solid-fuel missiles and sustained drone attacks on Gulf states, further tightening global energy supplies and stoking market volatility.
The recent escalation marks a significant shift from a long-running proxy war to direct state-on-state military engagement. For decades, the conflict was characterized by Iran supporting groups like Hezbollah and Hamas, while Israel conducted targeted strikes and covert operations. This new phase of direct attacks on critical infrastructure signals a far more volatile and unpredictable chapter in their decades-long animosity. Iran's retaliatory strikes utilized their Kheibar Shekan medium-range ballistic missiles. These solid-fuel missiles are notable for their rapid deployment capabilities, reportedly ready to fire in under 15 minutes, and can be launched from mobile platforms, making them difficult to detect and counter. With a range of approximately 1,450 kilometers, they are capable of reaching Israel from western Iran. The immediate economic fallout has been severe, with Brent crude prices jumping 7% to around $76 a barrel. Analysts warn that a prolonged conflict could push prices well over $100 per barrel, threatening to trigger a global recession. Natural gas prices have also seen a significant surge of over 40%, reflecting broader energy market volatility. The attacks have crippled maritime traffic through the Strait of Hormuz, a critical chokepoint for global energy. Normally, about 20% of the world's oil consumption passes through the strait, but traffic has slowed to a near standstill. This disruption has left hundreds of tankers idling and forced major LNG producer Qatar to halt production. Asian economies are particularly vulnerable to this supply shock, as they receive the vast majority of oil and LNG that transits the Strait of Hormuz. Around 84% of crude oil and 83% of LNG passing through the strait in 2024 was destined for Asia, with China, India, Japan, and South Korea being major importers. In response to the crisis, the U.S. Strategic Petroleum Reserve (SPR) currently holds approximately 415.4 million barrels. This is significantly lower than its authorized capacity of 714 million barrels and down from its peak of over 726 million barrels in 2010. The reserve was heavily drawn down in 2022 to its lowest levels in 40 years.
