US, Israel attack Iran in a joint operation: What does it mean for the global oil market?

The United States and Israel on Saturday (local time) launched strikes in a joint operation targeting Iran's military and naval forces. US President Donald Trump's decision to target Tehran has raised new risks for a major portion of the world's oil supply, Bloomberg reported.

Tehran is responsible for nearly 3.3 million barrels of oil per day, which is nearly three per cent of global output, making it the Organization of the Petroleum Exporting Countries' (OPEC) fourth-largest producer. However, its strategic location gives it far greater influence over global energy supplies than the production figures alone suggest.

Iran borders one side of the Strait of Hormuz, a crucial shipping route through which roughly 20% of the world’s crude oil passes, including supplies from major producers such as Saudi Arabia and Iraq. The oil markets are closed for the weekend, and there has been no information on whether the attacks on Tehran and the retaliatory strikes launched across the Middle East targeted any energy assets.

Iran’s primary refinery, established in Abadan in 1912, has a processing capacity of more than 500,000 barrels per day. Other major refining facilities include the Bandar Abbas and Persian Gulf Star plants, which process both crude oil and condensate, an ultra-light form of oil that Iran produces in substantial quantities. The capital, Tehran, also operates its own refinery.

For exports, Kharg Island in the northern Persian Gulf serves as Iran’s main oil terminal and logistics center. According to Iran’s semi-official Mehr news agency, an explosion occurred on the island on Saturday, though no further details were provided and there was no direct mention of damage to oil facilities. Kharg Island is equipped with multiple loading berths, jetties, offshore mooring points, and storage tanks capable of holding tens of millions of barrels of crude. In recent years, the terminal has managed export flows exceeding 2 million barrels per day.

Although US sanctions deter many international buyers from purchasing Iranian crude, independent Chinese refiners continue to buy it, typically at heavily discounted prices. To move its oil abroad, Iran relies on an aging fleet of tankers, many of which operate with their tracking transponders switched off to reduce the risk of detection.

Nearly a fifth of the world's oil passes through the Strait of Hormuz. While other OPEC members, including Saudi Arabia and the UAE, have some ability to reroute their shipments via pipelines that avoid the Strait of Hormuz, a full closure of the key waterway is likely to cause massive disruption to exports in the region and could spike crude prices.

(With inputs from Bloomberg)