The Global Energy Situation: Iran and the Future of Oil

Recent conflict between the U.S., Israel, and Iran has had a big impact on global energy, quickly raising oil and gas costs. After strikes by U.S. and Israeli forces in Tehran and Beirut, and Iran's response, market changes are the highest they've been in months. Brent crude oil went up over 13% when markets opened on March 2nd, settling at about $80 per barrel—almost a 10% increase in a week.

The main reason for this is the unstable situation in the Strait of Hormuz. Almost 20% of the world’s oil and gas passes through this waterway, so any threat to it affects the entire world. Iranian officials have threatened to close the strait, which has already limited ship movement. Many ships are waiting in safer areas. Experts say that if the strait is completely blocked or if the conflict goes on for long, oil prices could easily go over $100.

The problem isn't just with oil. Global natural gas prices have jumped almost 50% after Qatar Energy said it would stop LNG production because processing plants were hit. This affects both oil and gas, which could slow down the world's economic recovery and cause inflation worries in the West.

But some things could stop a total market crash. OPEC+ recently decided to increase production in April, but the planned 206,000 barrels per day is a small amount compared to global demand.

The actions of big importers like China and India could help reduce some risks. China, the world's biggest importer, is expected to buy less in the coming months as prices go up, which could lower demand. India, on the other hand, is focused on energy and will likely continue to buy from Russia, despite pressure from the West.

Even though the Strait of Hormuz is important, it's not the only way out of the Gulf. Saudi Arabia’s East-West Pipeline and the UAE’s bypass routes can handle almost 7 million barrels per day combined. This can't replace everything that goes through the strait, but it's an important backup that prevents a complete energy shortage.

For nearby countries like Azerbaijan, this situation is complicated. Higher energy prices might temporarily increase state income, but there are problems with logistics. Azerbaijan uses Iranian infrastructure, like the port of Bandar Abbas, for trade with China. A long war could disrupt imports of affordable materials, requiring Azerbaijan to quickly find different trade partners.

The conflict has reached a turning point with reports of the death of Iran’s Supreme Leader Ali Khamenei and some top military leaders. The Trump administration says its goal is to destroy military and nuclear sites, not to change the regime. But Iran's internal stability is a big question.

Former CIA Director David Petraeus believes that the loss of leadership could cause division within Iran. The Iranian rial has lost 99% of its value since 1979, and poverty is increasing. Some think that people in the military or government might see this as a chance to change direction and move away from isolation. But without a clear successor or a strong opposition, the future of Iran—and the world's most important energy route—remains uncertain.