The Israel-Iran conflict escalated dramatically during the weekend of June 14–15, with both sides attacking each other’s energy infrastructure, yet oil prices have since receded on the expectation that no major supply disruption will take place. But it is too soon to rule out a Middle East energy supply crunch. The most likely scenario for disruption, should one occur, is an Israeli first strike on Iranian exports that provokes retaliation by Tehran against wider Gulf region energy flows.
During the weekend, Israel expanded the scope of its military offensive against Iran to target certain energy-related assets, including:
- The Shahran fuel terminal in the Tehran area, with a 67-million-gallon capacity
- The Tehran Oil Refinery in southern Tehran’s Shahr Rey district, with a capacity of 225 thousand barrels per day
- The Phase 14 processing facility of the South Pars gas field, reportedly suspending the production of 12 million cubic meters of gas
- The Fajr-e-Jam natural gas processing plant, a key electricity supplier to southern and central Iran.
For its part, Iran attacked Israel’s largest refining and petrochemical plant in Haifa Bay; operations there have been suspended after the facility’s central power plant was severely damaged. Fearing Iranian retaliation for its military strikes, Israel preemptively suspended operations at Chevron’s offshore Leviathan natural gas field, causing Egyptian authorities to scramble to secure backup gas supplies. Meanwhile, the Tamir and Karish gas fields (operated by Chevron and Energean, respectively) are operating normally thus far.
With oil prices back down to around $70 per barrel, essentially unchanged from before the fighting, markets are signaling little concern about an oil supply disruption. This is mainly because no attacks have so far been seen on oil infrastructure or shipping, and a sense that Tehran may soon capitulate in accepting Washington’s terms for progress in nuclear talks. Additionally, oil market behavior still reflects the 2022 Russian invasion of Ukraine, when prices surged over $100 per barrel in anticipation of a major supply outage that never occurred.
Nevertheless, disruption risk is not entirely off the table. While President Trump continues to advocate for a negotiated deal to prevent Iran from developing a nuclear weapon capability, there are signs that Israel is pursuing a more ambitious goal of toppling the Iranian government. For example, Israeli Prime Minister Netanyahu told ABC News that assassinating Iranian Supreme Leader Ali Khamenei will not escalate the conflict but end it. Israel also bombed the studios of Iran’s state-run TV network, a target without a clear connection to Iran’s weapons programs.
In the context of seeking to destabilize Iran, Israel may choose to strike its oil exports, believing that working to finish off a hostile regime is worth the risk of alienating allies concerned with potential price escalation.
Israeli strategists are likely well aware that Iran’s oil export capacity is quite vulnerable to disruption. Its offshore oil export terminal at Kharg Island accounts for nearly all of its 1.5 million barrels per day average export volume. Kharg could be taken offline in a number of ways, including disabling or destroying its ship loading equipment (hoses, pumps, and connecting hardware), damaging its oil storage tanks, and/or cutting off the flow of oil that reaches Kharg via subsea pipelines. Choke points for oil deliveries to Kharg include the onshore Ghurreh booster station, the manifold station at Ganaveh, and the pipelines themselves.
It is unknown at this stage whether Iran possesses the military capacity or the risk tolerance to disable Gulf oil and gas facilities or interrupt seaborne energy transportation. The two disruption scenarios to consider, therefore, are (1) an interruption of Iranian exports only and (2) a wider Gulf outage.
A disruption of Iranian exports alone would not necessarily threaten a major global supply crunch, primarily because OPEC’s more than 3 million barrels per day of spare production capacity is more than enough to offset Iran’s 1.5 million barrels per day export volume. In theory, these barrels from Saudi Arabia and the United Arab Emirates (UAE) spare production capacity would offset Iranian losses with no material shortage and no increase in global prices.
However, the assumption that Saudi Arabia and the UAE would offer their extra barrels to supplant Iran’s disrupted volumes (and sales) carries some risk. Those Gulf nations have been vocal in criticizing Israel’s offensive against Iran, detailed in statements from Riyadh and Abu Dhabi. To then effectively “pile on” an Israeli campaign to deprive Iran of its oil trade would undermine their neutrality and be seen by Tehran as siding with Israel, a potential vector to a wider Gulf supply disruption.
The Wider Disruption Scenario
Iran may attempt to disrupt Gulf oil and gas exports under the following conditions:
- Retaliation against an Israeli first strike on its own oil exports
- Retaliation against perceived Saudi or UAE undermining Iranian interests
- Attempt to restore geopolitical deterrence if facing a stark defeat
Target sets that should be considered in a wider Gulf disruption scenario fall into three categories: (1) production and processing facilities, (2) marine export terminals, and (3) oil and gas tankers and shipping lanes. In this case, Saudi Arabia’s spare capacity could be less reassuring because it is substantially all located upstream of the Strait of Hormuz, a likely flashpoint for Iranian interdiction of seaborne flows. In other words, if the strait is shut, it might not matter how much spare capacity is held because it might not be able to reach customers. Both Saudi Arabia and the UAE maintain some capacity to reshuffle barrels from Gulf terminals to other outlets in the Gulf of Oman and Red Sea—but these waterways are also vulnerable to direct attack by Iran and by its Houthi allies in Yemen.
So far, Israel has limited its attacks against Iranian energy assets to localized fuel storage and minor natural gas nodes. This is consistent with a conservative approach that adds leverage while lessening the risk of a wider disruption that would alienate Trump and other allies. Israel may ratchet up this approach with attacks on Iranian oil refineries, which are also relatively isolated from global markets, and more strikes against natural gas facilities. If they do, the resulting shortages of electric power and gasoline could contribute to an Iranian capitulation while leaving global energy markets relatively unscathed.
Clayton Seigle is senior fellow and James R. Schlesinger Chair in Energy and Geopolitics at the Center for Strategic and International Studies in Washington, D.C.
