Oil prices surged to a two-month high over heightened tensions in Iran, with both Brent crude and West Texas Intermediate trading above $66.10 and $61.80 per barrel, respectively. Iran’s significant oil production, proven reserves, and control of the Strait of Hormuz present a crucial leverage point for global oil prices. Any disruptions could lead to a sharp market reaction.

In the past, Israeli airstrikes against Iranian military and nuclear infrastructure caused Brent prices to jump by 7% in one day. The impact of potential oil market disruptions in Iran depends on various factors, such as the number of barrels taken off the market and geopolitical risks like regime change or increased threats from the US. Skilled worker availability and infrastructure challenges may also contribute to production interruptions.

The Iranian Revolution in 1979 led to a significant drop in oil production from over 5.7 million barrels per day to 2.7 million barrels per day, showcasing the potential consequences of political upheaval. A disruption in Iranian oil exports would not only impact global oil prices but also affect China, the largest buyer of Iranian crude. China’s reliance on Iranian oil, particularly through smaller independent refiners, could face challenges in the event of sanctions or supply disruptions. The US Treasury Department has imposed strict sanctions on Iran’s oil since 2018. With Venezuela and Iran’s barrels off the market, Chinese refiners may turn to Russian oil or domestic stockpiles. President Trump warned of a 25% tariff for any country doing business with Iran, causing oil prices to rise. Despite oversupply, geopolitical risks could still impact prices. Brent crude call options hit record highs as traders brace for potential price spikes due to geopolitical tensions. Civil unrest in major oil-producing countries could add upward pressure on oil prices.

Read more at Yahoo Finance: Oil prices rise as tensions flare in Iran, risking ‘the nerve center of the global oil market’