Israel-Iran conflict may add up to $10 risk premium to oil prices
The conflict between Iran and Israel could add a geopolitical risk premium of $5-$10 to oil prices, as the Middle East region’s security risk rises, global rating agency Fitch has said.
“We expect the geopolitical risk premium in oil prices to be contained at around $5-$10. Material disruption to Iran’s production or export infrastructure would add more upward pressure to prices,” Fitch adds.
Iran produced about 3.26 million barrels a day of crude oil in 2024, according to OPEC.
“In the unlikely event that all Iranian exports are lost, they could be replaced by spare capacity from OPEC+ producers, which is around 5.7 million barrels a day. Higher oil prices would benefit the region’s oil producers, through higher fiscal and external revenues, particularly should they raise output to offset lower Iranian exports,” the Fitch report, published on June 16, read.
Israel carried out a series of air strikes on Iran, attacking its top military brass and key nuclear sites and scientists on June 12, pushing oil prices high. Western Texas Intermediate (WTI) crude touched $76, its highest in several weeks prior to the conflict.
“Israel has strong defensive countermeasures, and it appears that Iranian strikes have not had a material economic impact. We believe Iran’s capacity to retaliate against Israel via proxies in Gaza and Lebanon has been damaged by Israel’s military campaigns in those regions,” the rating agency said.
“Both factors suggest it is likely that damage from Iran’s military response to Israel’s latest attacks will not be on a scale that would affect Israel’s rating,” Fitch adds.
The agency downgraded Israel’s credit rating to 'A' from 'A+' last August, which it affirmed this March with a negative outlook, citing rising public debt, domestic political and governance challenges and uncertain prospects for the Gaza conflict.
Fitch adds that the GCC states have condemned Israel’s attack on Iran, reinforcing that GCC-Iran relations remain fairly good and that an Iranian move against targets in the GCC is unlikely.
Some sovereigns could also face credit profile downgrades, if the violence escalates.
