Oil prices rose on Friday as President Donald Trump’s new threats to Iran raised concerns about supply disruptions.
Iran is not a major oil producer. The country pumps about 3.4 million barrels per day, according to Kpler. The numbers pale in comparison to the United States and Saudi Arabia, which pump about 13.5 million barrels per day and 9.5 million barrels per day, respectively, according to data from the U.S. Energy Information Administration and OPEC.
But the recent wave of protests in Iran, sparked by the sharp fall in the Iranian currency Rial and subsequent hints by President Trump that the United States could take military action in the country, has shaken energy markets.
“The oil market is running on fear,” Helima Croft, global head of commodity strategy at RBC Capital Markets, told CNBC. “It’s basically a concern about disruption.”
Market anxiety increased on Friday amid rising tensions between Iran and the United States.
“We’re watching Iran closely,” President Trump told reporters Thursday. “You know, we have a bunch of ships headed that way just in case. We have a large convoy heading that way and we’ll see what happens.”
President Trump’s comments come as more than 5,000 people have been killed in Iran since protests began on December 28, according to Human Rights Defenders News Agency.
“They were going to hang 837 people,” President Trump said in an interview with CNBC on Wednesday. “And I told them, you can’t do that, you’re going to be in big trouble if you do that.”
Although market supplies are sufficient for now, OPEC and its allies, which supply about 40% of the world’s oil, increased production last year and reduced excess capacity.
“If the conflict between the US and Iran leads to a loss in Iranian oil exports, there is not much left in the tank for OPEC to cover it,” Croft said.
Concerns over a larger regional conflict are also pushing up prices, given Iran’s proximity to the world’s biggest oil producer, Saudi Arabia.
“Iran’s location is of great strategic importance given key waterways such as the Strait of Hormuz, a major oil chokepoint, and we have seen Iran and Iranian-backed groups attack tankers and critical infrastructure in the Gulf before targeting them,” Croft said.
In 2019, Iran launched a series of attacks on oil tankers in the Strait of Hormuz. According to the EIA, about 20% of the world’s crude oil flows through narrow waterways.
Despite rescinding his threat of military intervention, President Trump acknowledged to CNBC on Wednesday that 25% tariffs on countries doing business with Iran “are here to stay.”
Existing sanctions against Iran are already hampering the country’s crude oil exports, much of which goes to independent Chinese refiners who buy crude at a discount to benchmark prices.
“Given where the barrel of Iran is going, can we really tighten it up even more?” Croft said. “Have sanctions lost their ability to move the needle on Iranian policy?”
To learn more about Iran’s impact on the oil market and what it means for consumers, watch the video above.
