Yves here. Note that Iran had earlier called for an oil embargo against Israel only, which at the time was clearly intended to be largely symbolic (Israel imports little oil) but still get the Islamic oil producing stated to act together. The anger across the Middle East has reached such a level that going directly to an embargo against Israel and all its backers is reasonably likely, particularly since it’s an escalation to which the US and Israel would be bereft of good responses. They certainly can’t attack all or even some oil producers to bring them to heel.
By Simon Watkins, a former senior FX trader and salesman, financial journalist, and best-selling author. He was Head of Forex Institutional Sales and Trading for Credit Lyonnais, and later Director of Forex at Bank of Montreal. He was then Head of Weekly Publications and Chief Writer for Business Monitor International, Head of Fuel Oil Products for Platts, and Global Managing Editor of Research for Renaissance Capital in Moscow. He has written extensively on oil and gas, Forex, equities, bonds, economics and geopolitics for many leading publications, and has worked as a geopolitical risk consultant for a number of major hedge funds in London, Moscow, and Dubai. Originally published at OilPrice
- Iran has urged OPEC members to halt oil exports to countries supporting Israel, echoing the 1973 oil embargo, which dramatically increased oil prices and altered global economies.
- The call for an embargo is a response to the Israel-Hamas conflict, with the potential to significantly disrupt global oil supply and prices.
- As it now stands, there is every chance of a military or diplomatic misstep occurring in the Israel-Hamas War that may see a widening out of the conflict.
Iran’s Supreme Leader, Ali Khamenei, last week called on the Islamic members of OPEC to halt oil exports to Israel immediately. Given that Israel buys virtually none of its oil from Islamic members of OPEC – purchasing mainly from Azerbaijan, the U.S., Brazil, Nigeria, and Angola instead – this would seem in and of itself a somewhat peculiar threat to make. But that is not the actual threat being made by Iran’s spiritual leader, with the full backing of the practical guardians of the 1979 Islamic Revolution – the Islamic Revolutionary Guards Corps (IRGC). The real threat is that Iran is angling for a full oil embargo from all Islamic OPEC member states on countries that support Israel in its war against Islamic militant group Hamas. Saudi Arabia did exactly the same thing in 1973 for exactly the same reason – a war between Israel and Islam, as it also sought to portray it – with devastating results for oil prices, Western economies, and global geopolitical alliances for decades to come, as analysed in full in my new book on the new global oil market order.
Back in 1973, Egyptian military forces moved into the Sinai Peninsula, while Syrian forces moved into the Golan Heights – two territories that had been captured by Israel during the Six-Day War of 1967. By attacking from multiple points on the holiest day of the Jewish faith, Yom Kippur (the same attack method and religious date as the 7 October Hamas attacks used 50 years later) the two Arab countries thought they could take Israel off guard. And they did, for a while at least, finding increasing military support from Saudi Arabia, Morocco, and Cuba, and broader support from Algeria, Jordan, Iraq, Libya, Kuwait, Tunisia, and North Korea. The War ended on 25 October 1973 in a ceasefire brokered by the United Nations.
Around the same time as this, though, OPEC members – plus Egypt, Syria, and Tunisia – began an embargo on oil exports to the U.S., the U.K., Japan, Canada, and the Netherlands in response to their collective supplying of arms, intelligence resources, and logistical support to Israel during the War. As global supplies of oil fell, the price of oil increased dramatically, exacerbated by incremental cuts to oil production by OPEC members over the period. Gas prices also rose, as historically around 70 percent of them are comprised of the price of oil. By the end of the embargo in March 1974, the price of oil had risen around 267 percent, from about US$3 per barrel (pb) to nearly US$11 pb. This, in turn, stoked the fire of a global economic slowdown, especially felt in the net oil importing countries of the West.
Some later branded the embargo a failure, as it did not result in Israel giving back all the territory that it had gained in the Yom Kippur War. However, in a broader sense, as also analysed in full in my new book on the new global oil market order, the wider war had been won by Saudi Arabia, OPEC and other Arab states in shifting the balance of power in the global oil market from the big consumers of oil (mainly in the West at that time) to the big producers of oil (mainly in the Middle East at that point). This shift was accurately summed up by the then-Saudi Minister of Oil and Mineral Reserves, Sheikh Ahmed Zaki Yamani, who was widely credited with formulating the embargo strategy. He highlighted that the effects on the global economy of the oil embargo marked a fundamental shift in the world balance of power between the developing nations that produced oil and the developed industrial nations that consumed it.
The end of the oil embargo in 1974 also marked a decisive shift in the foreign policy of the U.S. towards the Middle East. From around April 1933 (when the U.S.’s Standard Oil made a one-off US$275,000 payment to Saudi Arabia – equivalent to around US$6.5 million in 2023 – to secure the exclusive rights to drill across the entire Kingdom), the fate of the Middle East’s oil supplies had largely been governed by the several formal and informal networks centred around Western international oil companies (IOCs), just as Sheikh Yamani had said. This had changed after the OPEC oil embargo was lifted in March 1974 but, as also analysed in full in my new book on the new global oil market order, under the guidance of Henry Kissinger (U.S. National Security Advisor from 1969 to 1975, and Secretary of State from 1973 to 1977) the new U.S. foreign policy towards the Middle East had the single objective of ensuring that the U.S. and its allies were never again held hostage by Middle Eastern oil producers. The policy, as fully detailed in the book, was a variant of the triangular diplomacy that Kissinger had been using to great effect in the U.S.’s dealings with Russia and China, with the use of ‘constructive ambiguity’ in the language used in dealing with the countries involved. In short, this meant the U.S. appearing to be on the side of various elements of the Arab world but, in reality, seeking to exploit their existing weaknesses to set one against another. Although this strategy provide successful for many decades, it has been challenged more recently by Russia and then China, with considerable success in wooing several major Middle Eastern oil countries away from the U.S.’s sphere of influence and into their own. These include the two powerhouse countries of the region – Iran and Saudi Arabia – which back on 10 March agreed a stunning historic deal to reestablish relations, brokered exclusively by China.
As it now stands, there is every chance of a military or diplomatic misstep occurring in the Israel-Hamas War that may see a widening out of the conflict. That would be the perfect point for Iran to push for a simultaneous widening out of an oil embargo on Israel alone into a broader one covering all its supporters in the West. Already, on 16 October Iran’s Foreign Minister, Hossein Amir Abdollahian, warned that its regional network of militias would open “multiple fronts” against Israel if its attacks continue to kill civilians in Gaza. It seems highly likely that the first new front would be a full activation of Hezbollah in Lebanon, to Israel’s direct north – a 100,000-strong very well-equipped fighting force funded and trained by Iran’s Islamic Revolutionary Guards Corps (IRGC) that dwarfs the fighting capabilities of Hamas in all respects. Israel has already stated that its mission is to “annihilate Hamas” and has launched ground operations into Palestine for as long as it takes to do so. Additionally, on 21 October, Israel’s Minister of Economy, Nir Barkat, said that if Hezbollah fully joins the war then Israel would “cut off the head of the snake” and launch a military attack against Iran. A third front could also be opened by Iran, using its own IRGC and proxy militant forces stationed in Syria, to Israel’s northeast.
So, what would a broader oil embargo look like? According to the latest assessment by the World Bank, a loss in global crude oil supply of 6-8 million bpd – which it refers to as a “large disruption” scenario comparable to the 1973 Oil Crisis – would result in a 56-75 percent increase in prices to between $140 and $157 a barrel. However, a broadening out of the embargo on Israel by the Islamic members of OPEC, as called for by Iran, would likely lead to a much bigger loss of global oil supplies than the World Bank has calculated. The Islamic members of OPEC are Algeria, with an average crude oil production rate of around 1 million barrels (bpd), Iran (3.4 million bpd), Iraq (4.1 million bpd), Kuwait (2.5 million bpd), Libya (1.2 million bpd), Saudi Arabia (9 million bp), and the UAE (2.9 million bpd). This totals just over 24 million bpd – or about 30 percent – of the current average total global production of about 80 million bpd.