Energy Transition, geopolitical Fragmentation, and the Iran Conflict

Iran energy conflict drives regional powers toward new brink after Israel strike

Muhammad Asghar | GlobalBeat

Tehran suspended most of its energy exports Monday while regional stock markets bled $47 billion after Israel bombed Iran’s main oil terminal at Kharg Island.

The one attack sent Brent crude past $92 a barrel, a 14-month high, and severed the last major artery through which Tehran pumps hard currency, officials and traders confirmed.

Oil and gas sales already under U.S. embargo had kept the Iranian economy alive through barter deals with China, Turkey and the Gulf. Removing those flows, even temporarily, strips the state of roughly 80 percent of its foreign earnings and could trigger domestic fuel rationing within weeks, said Sara Vakhshouri of SVB Energy International. “Iran now faces a double shock. Its fields are offline and its customers smell weakness,” she wrote in a note to clients.

First missiles, then the terminals

Israeli jets hit Kharg in two waves before dawn, the defense ministry in Tel Aviv announced. Satellite pictures released by Planet Labs showed black smoke billowing from at least four storage tanks and part of the single buoy used to load supertankers. The facility normally loads 1.5 million barrels a day, almost all of Iran’s seaborne exports.

Oil Minister Javad Owji went on state television hours later. He admitted “flows have stopped” but insisted repair crews were “working tirelessly”. He gave no timetable for reopening.

Israeli Prime Minister Benjamin Netanyahu defended the strike as “defensive action against Iran’s nuclear sprint”. Speaking to military reporters, he said Israel would “use all tools” to prevent Tehran from weaponising its programme. Iran denies seeking the bomb. U.S. President Donald Trump told reporters in Washington he had been briefed but “didn’t green-light anything”. He added Israel had the right to hit back after Iran fired 200 drones and missiles at Israeli bases this month.

Gulf officials fear further escalation. Kuwait’s energy company circulated a memo Tuesday warning pilots to avoid Iranian airspace after Tehran threatened reprisals “wherever we choose”. QatarEnergy told tanker captains the same day to steam straight to port after loading its North Field LNG cargo, skipping the usual slow-steam to save charter costs. “The signal is clear. Everyone is nervous the next rockets hit loading berths,” a Western diplomat in Doha said.

Saudi Arabia suspended plans to restore full output from its neutral-zone fields that share a maritime border with Iran, people familiar with the matter said. Riyadh had hoped to bring an extra 350,000 barrels a day online next quarter to capture higher prices, but ministers now want “extra cushion” in case the Strait of Hormuz is closed, one of the people said.

China, still Tehran’s top buyer of discounted crude, issued a rare public rebuke. Foreign ministry spokesman Zhang Jun told reporters Beijing “opposes any action that drives up energy prices”. China bought a record 1.2 million barrels a day from Iran in March, according to customs data, or roughly 90 percent of its visible exports. Analysts at Goldman Sachs estimate every $10 rise in oil prices adds $1 monthly cost to China’s import bill.

Eurasia police meet as Europe pivots

European Union energy ministers rushed onto an emergency video call Tuesday. EU Energy Commissioner Teresa Ribera warned a prolonged outage “risks repeating last decade’s price spikes” when crude briefly hit $120. The bloc has already drained two-thirds of the strategic reserves it filled after Russia’s 2022 invasion of Ukraine. Another release is “possible but risky” heading into winter, Ribera told reporters.

Brussels is scrambling to keep its Green Deal on track. Officials fear triple-digit oil could erode public support for phasing out coal and scaling back domestic gas. An unpublished Commission paper seen by Reuters suggests new subsidies for solar and faster permitting for wind farms “if prices stay above $90 for two straight months”.

Iran itself has staked hopes on selling electricity and green hydrogen to neighbours once sanctions ease. That goal faded Monday when the oil ministry said “domestic fuel priorities” will soak up most gas output. Iran sits on the world’s second-largest gas reserves after Russia, yet burns off or reinjects much of it to squeeze more crude from ageing wells. Analysts say diverting gas to homes and power plants will leave little feedstock for any exported power lines.

Background

Tehran’s oil industry never fully recovered after President Trump scrapped the 2015 nuclear pact and imposed “maximum pressure” sanctions in 2018. Output slumped from 3.8 million barrels a day to below 2 million, reviving only after China started paying in yuan and barter goods in late 2020.

Israel and Iran have fought a shadow war for years via proxies in Syria, Lebanon and Yemen, yet direct strikes on energy infrastructure were rare. The last tanker war in the 1980s saw both nations target Gulf shipping, pushing crude briefly above $40, equivalent to more than $100 today when adjusted for inflation.

What’s Next

Iran’s Supreme National Security Council meets Wednesday to debate whether to retaliate with missile barrages on Israeli gas rigs in the Mediterranean, two diplomats monitoring the discussions said. Energy traders expect any closure of Hormuz, through which one-fifth of global oil transits, would send prices racing past $100 and compel Washington to release extra strategic stocks.

Oil at triple digits would hand fresh revenues to Tehran’s rivals while sapping growth in oil-importing nations from India to Germany. For Israel, the gamble is that economic pain forces Iran to curb enrichment without sparking a wider war. For Europe, the risk is that fossil-fuel shocks unravel years of climate policy designed to wean the continent off volatility it no longer controls.