Iran is the third-largest oil producer under the Organization of the Petroleum Exporting Countries, producing nearly 4 million barrels of oil per day, according to data from the Energy Information Administration.
The significance of this macro event cannot be underestimated. The loss of Iranian oil would ultimately leave the market facing a supply shortage at a time when the US strategic oil reserve has been depleted.
The biggest and most significant impact, however, would be a disruption of flows through the Strait of Hormuz, which has been called “the world’s most important oil transit chokepoint.” Technically, such a move would cut off about a fifth of global oil supply.
This includes exports from major Gulf producers including Saudi Arabia, the United Arab Emirates, Kuwait and Iraq. Qatar also exports its liquefied natural gas through the Strait. A complete closure of the Strait would very quickly lead to “runaway oil prices” of $100 per barrel or higher.
Whichever way you look at it, one thing is clear. It certainly won’t take much for oil prices to surge significantly higher in this current macroeconomic environment and reach new highs in the coming weeks and months.