Israel unlikely to target Iran's oil supply: Expert

Oil Prices (BZ=F, CL=F) are falling slightly on Monday morning after Iran's air attacks against Israel for its strike on the Iranian consulate in Damascus. While the retaliation may not have caused oil prices to move at first, concern is mounting about the implications for oil prices as pressure builds in Middle East.

Atlantic Council Global Energy Center senior fellow and Transversal Consulting president Ellen Wald joins The Morning Brief to discuss the oil market's muted reaction to Iran's strike on Israel.

Wald explains that Israeli retaliation is not focused on Iran's oil supply, with OPEC remaining the key force behind supply and demand dynamics: "We get into the summer months, we're looking at pretty high rates of oil demand, but really I think the next big thing to keep an eye on, is OPEC is going to be meeting on June 2nd, and with OPEC keeping its output curbs in place, I think that's keeping oil prices elevated and the pressure is really going to be on OPEC to increase output and bring those oil prices down, especially, as you mentioned, with Biden facing reelection. "

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video Transcript

SEANA SMITH: Taking a look at the reaction or really lack thereof that we're seeing within the energy market, oil prices here, Israel fending off air attacks from Iran over the weekend, Crude and Brent both actually falling this morning. Now, prices did rise initially on the attack. Here to break it all down and how these tensions may impact global crude prices, we want to bring in Ellen Wald Atlantic Council's Global Energy Center, President of Transversal Consulting.

It's great to have you here, Ellen. Thanks so much for making the time to join us this morning. So talk to us just about the reaction that we're seeing play out in energy markets. I think, initially, investors were expecting a spike in the price of oil. So why are we seeing the reaction that we are today?

ELLEN WALD: Well, what we're seeing is really reflective of the fact that this attack had absolutely no impact on any oil supplies, and the truth is that there wasn't really much of a threat of that. I think a lot of the threat that traders or investors were getting concerned about had to do with some reports that sources in the White House were telling people on Wall Street that this could turn into a huge conflagration with economically devastating effects all around the world, and that's definitely something that did not materialize over the weekend. I think also the fact that the attack happened over the weekend when markets were closed gave a lot of the traders time to assess what it really means and the fact that there was never any danger to any oil supplies and that that's continuing to be the case now.

BRAD SMITH: And, Ellen, just to describe what our viewers may have been seeing on the screen there, the interception of some of those missiles that our own Rick Newman was talking about a moment ago-- OK and so if this particular event is muted or already priced in or contained to a certain extent, where does much of the attention within the oil market and the energy market shift to, especially as we move into the summer months here?

ELLEN WALD: So I think that there's definitely still some concern over, is Israel going to then retaliate in some other way. I think the likelihood that kind of retaliation or attack would, in any way, damage Iran's oil supplies is pretty low at this point. They seem really focused on eliminating the terrorist commanders that are impacting Israel's territory.

And then beyond that, we get into the summer months, we're looking at pretty high rates of oil demand. But really, I think the next big thing to keep an eye on is OPEC is going to be meeting June 2. And with OPEC keeping its output curbs in place, that's really, I think, keeping oil prices elevated. And the pressure is really going to be on OPEC to increase output and bring those oil prices down, especially as you mentioned, with Biden facing re-election.

SEANA SMITH: Ellen, when it comes to potentially the US's response here down the road, beyond an Israeli strike, there has been some talk amongst officials that we could see increased sanctions on Iran. What would tighten sanctions? What would the implications then of that be for the energy market?

ELLEN WALD: At this point, it's really unclear what sanctions they can put on Iran more than they have now. The issue is really in implementation, are they going to crack down and enforce these sanctions more stridently. So right now, they enforce them in some ways, but the truth is that China and other countries are buying a lot of contraband Iranian oil. The Iranian government is making a large amount of money from this. But at the same time, there's a benefit to that because it keeps Iranian oil on the market, albeit at somewhat discounted prices for Iran, but it also means that Iran has something to lose.

If all of Iran's oil exports were cut off, Iran would have less to lose and it would be more motivated to do something very drastic like potentially try to shut down passage through the Straits of Hormuz. So there is a benefit in letting Iran export some oil. So I think it's a very fine line that the administration's got to walk here between how much you want to enforce these sanctions and how much you want to let Iran make money from its oil. And it's a good question. I think we'll probably see some kind of symbolic action, some sanctions that aren't really going to make much of a difference slapped on so they can say that they've done something

BRAD SMITH: Yeah. And so Elon just further down that, in the hypothetical that there was a blockage of the Strait of Hormuz, then the US would be prompted to respond in that instance, right?

ELLEN WALD: Yeah, the US Navy is essentially in the Persian Gulf to ensure that everyone's got safe passage there. It's quite a tricky area, the Straits of Hormuz. And if Iran were to try to block, Saudi, Kuwaiti, Iraqi ships or any other ships from import from getting in to get oil from these countries or out, the US Navy would respond clearly by not letting Iranian ships leave the Persian Gulf, too. So it's only it's only a win situation for Iran if they have nothing to lose. Otherwise, they're going to suffer even more, because their entire source of income would be cut off. They have no real other way to export oil, other than out of the Persian Gulf.