Oil Prices: Israel’s surprise attack on Iran, a significant oil-producing country, could exacerbate the weak global economic growth and make it more difficult for central banks to manage in a market that is already unpredictable. Every day, Iran exports up to two million barrels of oil and refined petroleum products (mbd). The majority of this oil is exported to China at a discount because of long-standing sanctions.

Declined Iranian Exports:

A sudden drop in Iranian exports, roughly 2% of the global oil supply, would normally raise alarms. However, OPEC (the Organization of the Petroleum Exporting Countries) has started reversing the production cuts it introduced during the early stages of the COVID-19 pandemic. The organization now maintains an unusually high spare capacity of at least four million barrels per day. Saudi Arabia holds up to 3.5 million barrels of this reserve. While the United Arab Emirates controls about one million.

In addition, the International Energy Agency (IEA) has stockpiled around 1.2 billion barrels of emergency oil reserves across OECD countries, ready for deployment if needed. China also holds significant reserves, although distinguishing between its strategic and commercial stockpiles remains challenging.

Also Read: The Curse of a 16-Year-Old Girl That Still Shadows Iran

China’s Opportunistic Buying Strategy 

Iran currently has around 40 million barrels of unsold oil sitting on anchored ships near China, as industrial demand declines and electric vehicle adoption rises. In May, China’s refinery throughput dropped by 1.8% compared to the previous year. The data shows no signs of recovery yet. At the same time, the International Energy Agency (IEA) now expects global oil production to outpace demand by 1.8 million barrels per day, an increase from its earlier estimate of 0.72 million barrels per day, widening the supply-demand gap.

China has acted as a strategic and cautious buyer. Earlier this year, it declined to purchase Iran’s surplus oil when prices were at US$65 (£48) per barrel. Whether it will now agree to buy at US$75 (the current rate) or higher could reveal how seriously it views rising Middle East tensions. Meanwhile, other Asian oil importers are watching U.S. supplies and quickly securing alternative imports from West Africa. This surplus and weak demand have kept the oil market surprisingly steady. Despite initial concerns, the market did not react as sharply as expected. After a brief $10 spike, oil prices have since fallen. Traders and analysts now seem to be evaluating whether the Israel-Iran conflict will escalate further. If it does, energy prices and inflation could face stronger upward pressure soon.

Also Read: Iran’s Hypersonic Missile: A Game-Changer? Fattah-1 Explained

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