Oil Market Impacts from Iran

Strikes in Iran have reignited concerns about oil supply, inflation pressure, and cross asset volatility. How significant are these disruptions, and what are the implications for the global economy? I'm Alison Nathan, and this is Goldman Sachs Exchanges. Today, I'm sitting down with my colleague in Goldman Sachs Research, Don Stroivan, co head of global commodities research and the head of oil research. Don, we'll come back to exchanges.

Thank you, Allison.

Don, before we turn to markets, we just want to acknowledge first the very real human cost of any escalation in the region. Our focus here today is strictly on the economic and market implications. So with that in mind, Don, the last time we had you on this program, we were talking about Venezuela and the oil market impacts of those developments. But, clearly, we have had The US and Israel launch over the weekend a military campaign against Iran. It has killed Iran's supreme leader, Ayatollah Ali Khamenei. So how significant are these developments, most importantly, thinking about what is actu

Yes. So the developments are definitely significant, especially because flows through the Strait Of Hormuz, which in normal times accounts for about one fifth of global oil supply, are down very sharply with only some Chinese ships reportedly going to the strait. And as a result, I think the rise in oil prices up 8% since Friday, up 25% year to date. I think that increase is appropriate in light of the rise of geopolitical risks to energy supply.

When we think about the actual disruptions we're seeing now, are you actually getting confirmation that oil infrastructure has been disrupted in some of these other countries, either from the port side of things, fields, refineries? Talk us through it.

Yeah. So in the oil markets, the impact is the most significant in terms of export flows with a very sharp drop in volumes coming to the Strait Of Hormuz, not because the Strait is completely shut, but because shippers or producers are going to a wait and see mode because they have seen reports of three ships that have been damaged and because insurance premia have skyrocketed. In terms of actual production as opposed to exports, there are some reports that production in Iraq is down somewhat around 200,000 barrels per day. Saudi Arabia's largest refined products refinery is apparently also sh

Interesting. And I think that is an interesting point you Don, because you think about the Strait Of Hormuz closure. We talk about that a lot. As you said, right now, it in itself is not being shut, but people are voluntarily deciding not to send flows through there because of the risk involved.

Absolutely.

And we are seeing the broader region actually involved as well in some of these developments. How is that impacting supplies and infrastructure for energy around the region?