Oil supply risk spikes amid Middle East conflict

Energy markets have become the front line of the Iran conflict’s market impact. Geopolitical risk was widely anticipated, and crude prices had already moved higher in the weeks ahead of the attacks. However, the abrupt slowdown in physical flows through the Strait of Hormuz has introduced a new and more acute supply risk. Iran produces 3-3.5 million barrels a day (mmbbl/d) of oil, exporting largely to China at discounted prices. With limited remaining OPEC+ spare capacity, any prolonged disruption would be difficult to offset. OPEC’s latest production increase is marginal relative to the scale...