By Paul Burkhardt, Anthony Di Paola, and Julian Lee
(Bloomberg) – President Donald Trump’s decision to take action against Iran raises new risks for a large portion of the world's oil supply.
Iran produces over 3 million barrels of oil per day, accounting for about 3% of global output, ranking as the fourth-largest producer in OPEC. However, its strategic location gives it even more influence over global energy supplies.
The country sits near the Strait of Hormuz, a key shipping route for around 20% of the world's crude oil from major suppliers like Saudi Arabia and Iraq. Following recent attacks in the region that began on Saturday, shipping traffic through this vital waterway has dropped significantly, though some tankers are still making the journey.
Here are the key factors to monitor in the oil market as the situation develops.
Iran has long claimed it could fully close the Strait of Hormuz, but this extreme action has never been taken before and would be catastrophic for global markets.
On Saturday, ships reported a radio announcement supposedly from the Iranian navy declaring that transit through the strait was prohibited. However, there has been no official word from Tehran on this matter, and significantly fewer vessels are currently passing through.
The Strait of Hormuz is crucial for the majority of the Persian Gulf's crude oil and refined fuel exports, including diesel and jet fuel. Qatar, a major exporter of liquefied natural gas, also depends on this strait and requested that shipowners stop navigation on Saturday.
OPEC members, like Saudi Arabia and the United Arab Emirates, can partially reroute their oil through pipelines that bypass Hormuz.
Saudi Arabia has a 746-mile pipeline that allows it to transport oil across the kingdom to a Red Sea terminal, where it can be loaded onto ships for further transport. This East-West Pipeline can carry 5 million barrels of crude oil daily.
The UAE has a pipeline from its oil fields to a port on the Gulf of Oman, which can move 1.5 million barrels of oil each day, providing a limited alternative to Hormuz.
Iraq, OPEC's second-largest producer, has a pipeline running to Turkey, but this only transports oil from northern fields. Most of its oil exports still pass through the Strait of Hormuz via the port of Basra.
Countries like Kuwait, Qatar, and Bahrain have no choice but to route their oil through the strait.
Even with these alternative pipelines, closing the strait would significantly disrupt exports and likely lead to higher oil prices.
In response to growing tensions from U.S. military deployments in the Middle East, Saudi Arabia and other oil producers have increased their exports. In the first 24 days of February, Saudi oil shipments averaged about 7.3 million barrels per day, the highest in nearly three years. Iraq, Kuwait, and the UAE are also expected to boost their combined oil flow by almost 600,000 barrels per day compared to January.
On Sunday, key members of OPEC+, led by Saudi Arabia and Russia, agreed to increase output by another 206,000 barrels per day next month.
On Sunday, signs emerged that the conflict is escalating. Buildings in Tel Aviv were hit; missile defenses intercepted incoming Iranian missiles in the UAE, Qatar, and Bahrain; and there were reports of attacks on Dubai's main airport, the busiest airport in the world.
Sunday also saw the first maritime attack since the war began. A small oil tanker, reportedly sanctioned by the U.S. for assisting Iran with fuel exports, was targeted off the northern coast of Oman.
The 20-member crew was evacuated, with four people sustaining injuries, as reported by Oman. The identity of those who targeted the vessel, called Skylight, remains unclear.
Iran has previously targeted the energy assets of its neighbors. In 2019, an attack on Saudi Arabia's Abqaiq oil-processing facility disrupted production that constituted about 7% of the global crude supply, and the U.S. attributed this attack to Iran.
Regarding the Strait of Hormuz, many analysts believe that while it's unlikely Iran could keep the strait shut for long, more subtle actions like harassing shipping may be more probable.
During last year's conflict between Israel and the U.S., nearly 1,000 vessels had their GPS signals jammed near Iran's shore, leading to at least one tanker collision. The use of sea mines to deter shipping has also been a topic of concern.
Despite ongoing international sanctions, Iran’s oil production has increased to about 3.3 million barrels per day, up from less than 2 million barrels per day in 2020. The country has learned to navigate these sanctions, sending roughly 90% of its exports to China.
Major oil fields in Iran include Ahvaz, Marun, and the West Karun cluster, located in Khuzestan province which is adjacent to Iraq and at the northern end of the Persian Gulf.
Iran’s primary refinery, established in Abadan in 1912, can process over 500,000 barrels per day. Other significant refineries include those at Bandar Abbas and Persian Gulf Star, which refine both crude oil and condensate, a type of very light oil plentiful in Iran. Tehran also has its own refinery.
For international shipments, the Kharg Island terminal in the northern Persian Gulf serves as the main logistical hub. An explosion was reported on the island Saturday, according to Iran’s semi-official Mehr news agency, but no further details were provided, nor was there any mention of the oil terminal.
Kharg Island features numerous loading berths and jetties, with the capacity to store tens of millions of barrels of crude oil. In recent years, the terminal has handled export volumes exceeding 2 million barrels per day.
U.S. sanctions deter most potential buyers of Iranian crude, yet private Chinese refiners remain willing to purchase it if offered significant discounts. Tehran relies on a fleet of older tankers that often navigate without their transponders activated to avoid detection.
Recently, Iran was quickly loading tankers at Kharg Island, likely to send out as much crude as possible before potential attacks on the facility. A similar strategy was implemented last June prior to expected assaults by Israel and the U.S.
Any attack on the Kharg Island terminal would be a severe blow to Iran's economy.
Iran's principal natural gas fields are further south along the Persian Gulf coast, where facilities in Assaluyeh and Bandar Abbas process, transport, and ship gas and condensate for domestic use in energy and other industries.
This area is also crucial for Iran's condensate exports. During the June conflict, an attack on a local gas facility raised concerns among traders but did not lead to a lasting surge in oil prices since it did not impact any export facilities.
During the June conflict, oil prices rose significantly, with Brent crude breaking above $80 per barrel in London. However, these gains quickly subsided once it was evident that regional oil infrastructure remained intact.
Since then, fears of oversupply have dominated the market, resulting in crude prices in London ending the year about 18% lower than the beginning of 2025.
Despite concerns about an oversupply, prices have seen a 19% increase this year, partly fueled by anxiety over potential U.S. strikes on Iran.
With major oil futures markets closed for the weekend, insights into trader responses to the latest attacks are limited. However, a retail trading platform, run by IG Group Ltd., had West Texas Intermediate priced at $75.33, a rise of up to 12% from Friday’s closing price.
For the global benchmark Brent, the attacks are likely to push prices towards $80 in the “near term” as analysts anticipate a “widening escalation cycle,” according to Bloomberg Intelligence analysts Will Hares and Salih Yilmaz.