What if oil prices reach $120 if Iran blockades the Strait of Hormuz?

The energy imbalance

Leading energy experts agree that if the situation in Iran spirals out of control, the impact on global oil and financial markets will be devastating, far exceeding what happened in Venezuela. The core reason lies in production: Iran produces four times the amount of oil as this South American nation.

Discussing this issue, Professor Andreas Goldthau - Director of the Willy Brandt School of Public Policy (University of Erfurt, Germany) analyzed: "Iran is the third largest producer in OPEC. Their production meets about 4% of global demand, while Venezuela accounts for only about 1%. In terms of exports, Iran is estimated to bring 2 million barrels per day to the market, while Venezuela only produces 350,000 barrels."

Furthermore, geopolitical location is a key factor. Approximately half of the world's oil reserves and one-third of its oil production are located in the Middle East. Therefore, any political upheaval in Iran puts far greater pressure on the market than in Venezuela.

Although Venezuela possesses the world's largest oil reserves (approximately 303 billion barrels), most of it is heavy crude oil, located in the remote Orinoco Belt, requiring specialized and costly extraction and refining technologies.

"The Night Fleet" and avoiding punishment.

Both Iran and Venezuela are hampered by international sanctions, a lack of advanced drilling technology, and a shortage of spare parts. However, Iran's oil and gas industry has shown remarkable resilience.

After a shock drop to 2 million barrels per day in the 1980s, Iran's production has recovered and stabilized around 4 million barrels per day. To maintain the flow of "black gold," according to Western media, Iran operates a massive "shadow fleet."

"Western sanctions have forced Iran to store some of its production at sea. They use the oil tanker fleet of the National Iranian Oil Tanker Company (NITC) – one of the world's largest fleets – as floating storage, mostly anchored off the coast of Southeast Asia, near major customers like China," Goldthau said.

To avoid scrutiny, Iranian oil is often transferred at sea to ships not flying the Iranian flag before reaching port.

The ghost of the past and the scenario of oil prices at $120/barrel.

The current social situation in Iran shares many similarities with Venezuela: dilapidated infrastructure, energy subsidies that drain the budget, inflation, and currency devaluation.

One scenario that worries observers the most is the possibility of Iranian oil workers going on strike. The history of 1978 shows that oil workers' strikes exerted immense pressure, contributing to the collapse of the Shah's regime and altering the Iranian political landscape.

From a market perspective, if supplies from Iran are disrupted, oil prices would skyrocket in the short term. However, the greater danger lies in the Strait of Hormuz – the "choke point" of the world's oil flow, which carries 25% of global oil and 20% of global liquefied natural gas (LNG).

According to estimates by JPMorgan Chase, if Iran blockades the strait, oil prices could be pushed up to $120 per barrel. This would not only shock gasoline prices but also cause gas prices in Europe to skyrocket, threatening the global economic recovery.