What’s on the Oil Markets as Trump Hits Iran

(Bloomberg) — President Donald Trump’s decision to strike Iran creates a new threat to an important chunk of the world’s oil supply.

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The Islamic Republic itself pumps 3.3 million barrels per day, or 3.3% of global output, making it the fourth largest producer in OPEC. But the nation has a great influence on the power supply of the country because of its good location.

Iran sits on the other side of the Strait of Hormuz, a shipping route for about one-fifth of the world’s goods from major exporters including Saudi Arabia and Iraq. Oil and gas tankers remained blocking the waterway following Saturday’s attack, with Iranian media saying it was “completely blocked.” Ships collected both sides of the entrance, tracking data collected by Bloomberg show.

Oil markets were closed over the weekend, and there is no indication that Iran’s attacks and international retaliation across the region were aimed at any force.

Here are the pressure points to watch in oil as events unfold.

Production of Iran

Iran’s oil output has risen from under 2 million barrels per day in 2020 despite continued sanctions. The country has been able to circumvent these restrictions, sending 90% of its exports to China.

The world’s largest oilfields are Ahvaz and Marun and the West Karun cluster, both in Khuzestan province.

Iran’s largest refinery, built in Abadan in 1912, can produce more than 500,000 barrels per day. Other important plants include the Bandar Abbas and Persian Gulf Star refineries, which handle crude and condensate, a type of ultra-light oil abundant in Iran. The capital, Tehran, has its own refinery.

For Iran’s overseas shipping, the Kharg Island area in the northern Persian Gulf is the main shipping point. There was an explosion on the island on Saturday, according to Iran’s semi-official Mehr news agency, which did not provide further details or make any reference to the oil terminal.

Kharg Island has numerous loading bays, jetties, remote mooring points and tens of millions of barrels of waste storage capacity. These facilities have handled export volumes of more than 2 million barrels per day in recent years.

US sanctions discourage potential buyers of Iranian crude, but independent Chinese refiners have remained willing buyers, provided they get deep discounts. Tehran relies for its international transport on a fleet of large tanks that often travel with their transponders turned off to avoid detection.

Earlier this month, Iran was rapidly filling tanks on Kharg Island, possibly in an attempt to get more mud on the water surface and put ships out of harm’s way if the area is attacked. It made a similar move last June before the Israeli and US attacks.

Any strike at the Kharg Island port could affect the country’s economy.

Iran’s largest natural gas reserves are located in the south along the Persian Gulf coast. Buildings at Assaluyeh and Bandar Abbas process, transport and ship gas and condensate for domestic use in power generation, heating, petrochemicals and other industries.

This area is the main export point for Iran’s condensate. During the June war, the attack on the natural gas field caused jitters among traders, but it did not cause a rise in oil prices because it did not affect any export markets.

Local Disasters

Iran’s prime minister warned on February 1 of a “regional war” if his country is attacked by the US. Tehran has always said a complete closure of the Strait of Hormuz is within its power, but it is the most extreme step it has ever taken – and it threatens the mood of global markets.

On Saturday, the ships said they heard a radio broadcast claiming to be from the Iranian Navy, announcing that navigation through the waterway was prohibited. There has been no official announcement from Tehran about the status of the strait, although shipping activity appears to have largely stopped.

Hormuz is responsible for most of the Persian Gulf’s crude exports, as well as refined fuels such as diesel and jet fuel. Qatar, one of the world’s biggest exporters of natural gas, also relies on the route, and on Saturday asked ship owners to stop sailing.

While OPEC members Saudi Arabia and the United Arab Emirates are able to restore their oil shipments through pipelines bypassing Hormuz, closing the strait will still cause major disruptions to exports and raise crude prices.

Saudi Arabia and other producers have recently increased oil exports as the deployment of American military equipment to the Middle East has increased tensions in the region.

Saudi crude shipments reached 7.3 million barrels per day in the first 24 days of the month, the most in nearly three years. Combined flows from Iraq, Kuwait and the UAE are set to rise by nearly 600 barrels per day from the same period in January, according to data from Vortexa Ltd.

In the past, Tehran has retaliated against some of its neighbors. In 2019, Saudi Arabia blamed Tehran for a drone attack on its Abqaiq oil refinery that halted production equivalent to 7% of the world’s output.

Many observers say that it is unlikely that Iran can keep Hormuz closed for a long time, carrying out low-level actions such as the harassment of shipping.

During last year’s war with Israel and the US, up to 1,000 ships a day were placed on GPS signals near Iran’s coast, resulting in the collision of at least one tanker. Sea mines are one of the most threatened options for preventing shipping.

Market Reactions

Oil rose the most in more than three years during the June war, with Brent crude rising above $80 a barrel in London. However, the gains quickly ended when it became clear that the key regional fuel systems had not been damaged.

Since then, concerns about oversupply have dominated global markets, with crude in London ending 2025 about 18% lower than where it started.

Despite these fears of a glut, prices have risen 19% this year, partly due to concerns surrounding the US strike on Iran.

With major oil futures markets closed over the weekend, there is little insight into how traders are reacting to the latest onslaught. However, the commodity trading product, led by IG Group Ltd., was the price of West Texas Intermediate as high as $7,333,000, a gain of about 12 percent since the end of Friday.

For the global benchmark Brent, the strike is likely to push the market to $80 in the “near term” as “further cyclical” price action takes place, Bloomberg Intelligence analysts Will Hares and Salih Yilmaz wrote in a note.

–With help from Julian Lee.

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