Prices for oil rose this week as the United States President Joe Biden suggested a strike on Iran’s oil fields. Crude oil futures spiked roughly $4 per barrel within 45 minutes of Biden’s comments — the environmental consequences of doing so have already come into focus.
The situation escalated after Iran dropped more than 200 rockets on Israel earlier this week. As tensions escalate, Israel reportedly intends to counter with aerial strikes against Iran’s oil refineries. This threat of revenge has created new uncertainty in the oil market worldwide, and investors took immediate notice of Biden’s mention of a possible U.S. presence.
Biden made the comments during an informal briefing of journalists as he left the White House on Thursday, heading to Perry, Florida, where he will inspect Hurricane Helene-related damage. Asked about Israel’s purported intentions to attack Iran’s oil fields, Biden said, “We’re talking about that. I guess that would be about… anyway… Nothing will happen today.”
While Biden tried to play down the chances of an impending attack, his words rattled the oil market. Oil prices rose dramatically, before bouncing for a few minutes at $74 and finally holding up just a bit to $73.The previous day crude futures had opened at $70.10.
Oil dealers pay close attention to political instability, especially in the Middle East, a source of global oil supplies. If oil supplies in Iran, one of the largest oil producers on Earth, were disrupted, it would send ripples through global energy markets bringing greater costs for consumers and enterprises. The market’s hyper-awareness to Middle East geopolitics was clear in the swift retort to Biden’s remarks.
If Iran was attacked by an attack on its oil infrastructure, world supply of oil would be severely curtailed and prices would spike further. The result for a global oil market that’s already severely constrained by supply will only increase costs of fuel and other petroleum commodities globally.
Not only are Biden’s remarks meaningful because of their immediate impact on oil prices, but because they were also very much political in their timing. American support for Israel in its conflict with Iran has been longstanding, and Biden’s statement signals the administration’s willingness to consider direct involvement in a war that might further destabilize the area.
But attack on Iran’s oil facilities would set Biden in a politically awkward spot. The president of the United States has made the issue of climate change and environmental protection a major focus of his administration. Just this week, Biden credited climate change and global warming through rising greenhouse gas emissions for Hurricane Helene.
Attacking Iran’s oil sites would virtually certainly add a huge number of tonnes of greenhouse gas emissions, not only in terms of infrastructure destruction, but also in terms of overall world oil production and consumption. The environmentalists and climate activists would view such a strike as a step in the wrong direction for Biden’s stated aims of cutting carbon emissions and slowing climate change.
Iran has fueled tensions between Israel and the Islamic Republic of Iran over the years as it sponsors Hezbollah and Hamas who have launched multiple attacks on Israel. Israeli strikes have been launched in recent years against Iranian military positions in Syria, where Iran has bases.
This week, Iran stepped up the aggression by firing more than 200 missiles at Israel in one of the largest missile attacks in the region in decades. Israel in turn has been gearing up for revenge action with Iranian oil installations rumoured to be one of the top targets.
Israeli bombers have already dropped strikes against Iranian installations, but attacking Iran’s oil facilities would be a significant extension of the conflict. An attack of this nature could easily upend Iran’s oil exports – a vital sector of its economy.
A bomb on Iran’s refineries would likely impact well beyond the Middle East. Iran is the world’s largest oil producer, and an interruption to its oil supply could lead to a huge spike in global oil prices. The higher oil prices would, in turn, increase costs for transportation, manufacturing and other oil-dependent sectors.
But a lack of oil supply would also lead to inflationary pressures already in full swing for many countries. The prospect of fuel inflation could be very disruptive for consumers in those already experiencing high inflation rates and monetary volatility.
Meanwhile, the environmental impacts of a strike on Iran’s oil infrastructure might be catastrophic. Oil spills, explosions and fires could cause massive environmental damage, particularly if oil-field infrastructure is at stake. These adversities would be likely to encourage new criticism of military intervention in the region and doubt the long-term effects of growing tensions between Israel, Iran and allies.
Biden’s comments follow a move by Biden to try to generate some broad world-wide understanding about the current Israel-Iran war. Israel was long a trusted friend of the United States, but this week’s missile strikes had made a very difficult Middle East situation even more complicated. Meanwhile, Biden has been trying to steer clear of a full-scale regional conflict with a focus on diplomatic engagement and coalition-building.
Biden also met earlier on Thursday to discuss the Israeli-Iranian war with heads of Canada, France, Germany, Italy, Japan and the United Kingdom. White House Press Secretary Karine Jean-Pierre told reporters the G7 members recognized the need for a coordinated effort, including new sanctions on Iran.
“They talked about Iran’s deplorable attack on Israel,” Jean-Pierre said, adding that Biden had declared “allegiance and support to Israel” while reiterating America’s continued support for Israel’s security.
With the Middle East becoming more volatile, Biden’s comments about attacking Iran’s oil refineries prompted economic and political concerns. Although the president fought to play down the odds of a quick strike, his remarks caused oil prices to go into free fall and have generated controversies regarding the implications of a strike. With Biden struggling with these tensions, the rest of the world will see what action the US takes and whether any diplomacy can avoid it further.
Oil prices are currently nervous and a rise is possible as the Israeli-Iranian conflict persists.
