<b>Live updates: Follow the latest on </b><a href="https://www.thenationalnews.com/news/mena/2024/08/21/live-israel-gaza-war-ceasefire/" target="_blank"><b>Israel-Gaza</b></a> “We need to attack Iran’s energy facilities,” said former Israeli prime minister <a href="https://www.thenationalnews.com/mena/2022/04/06/israels-naftali-bennett-loses-majority-after-mp-quits-coalition/" target="_blank">Naftali Bennett</a>. “We’re in discussion of that,” answered US President <a href="https://www.thenationalnews.com/tags/joe-biden/" target="_blank">Joe Biden</a> when asked if the US would support such an Israeli move. “Either everyone benefits or everyone is deprived,” said <a href="https://www.thenationalnews.com/mena/iraq/2024/02/01/kataib-hezbollah-islamic-resitance/" target="_blank">Kataib Hezbollah</a>, the Iranian-backed Iraqi militia, referring to the region’s oil. This is dangerously irresponsible talk. A limited regional conflict, which could objectively have been cooled down by some sensible diplomacy, could now imperil the safety of neighbouring states, the world’s energy supplies and the health of the global economy. There is a range of plausible threats and scenarios. Intensified and more stringently enforced US sanctions on Iran could take off perhaps half a million or more barrels a day of exports. Israeli attacks on oil facilities could interrupt exports, or, as Ukraine has done with Russia, it might strike refineries to disrupt domestic fuel supplies. Satellite images suggested that oil tankers had left Kharg Island in the northern Gulf, Iran’s main oil export terminal, perhaps a precaution. If Iran’s own energy or nuclear facilities were attacked, it would probably seek to retaliate in kind. The capability of Iran and its allies, Hezbollah in Lebanon and the Houthis in Yemen, to attack critical infrastructure in Israel is unclear given recent setbacks for them. More than half of Israel’s power generating capacity comes from gas, supplied by three offshore fields. These are also crucial providers of gas to Jordan and Egypt. The deputy commander of the Sepah, the Islamic Revolutionary Guard Corps, said Iran would, “target all [Israel’s] energy sources, including power stations, refineries and gasfields” in response to any “mis-step”. Otherwise, Iran or its aligned groups in Iraq might attack other regional energy suppliers, as in the rocket and drone attack on Saudi Arabia’s crucial oil processing facility of Abqaiq in September 2019. The damage inflicted then was limited, probably on purpose, and quickly repaired, but Tehran would probably aim for serious disruption in a repeat. Iran could not physically shut the Strait of Hormuz, and doing so would cut off its own exports, too, if they were still active. However, as the Houthis have shown, simple drones, mines and missiles can be effective in deterring most shipping movement, and hard to counter. That could also interrupt liquefied natural gas exports from the Gulf, just ahead of the Northern Hemisphere winter. A major spike in oil and gas prices would harm China, India and Europe, risk reigniting inflation just as it had been contained, and torpedo the economic record of the administration of Mr Biden and Vice-President Kamala Harris just ahead of November’s cliff-edge election. Conversely, Russia would be empowered by an energy shock, undercutting the hesitant policy of the US and Germany on aiding Ukraine. China, which helped broker the Iran-Saudi normalisation last March, might step in; as its only paying oil customer, it has influence over Tehran. It may also put <a href="https://www.thenationalnews.com/news/2024/10/06/israel-iran-militias-october-7-hamas/" target="_blank">pressure on Israel</a> to avoid any attacking energy facilities. The Iranian and GCC foreign ministers met in Doha on Thursday, hopefully making progress on avoiding a widening of the conflict to the Gulf. The energy market has grown complacent. As I <a href="https://www.thenationalnews.com/business/energy/2024/04/29/the-delicately-balanced-jenga-tower-of-energy-security/">remarked</a> in April, the energy security situation is like a Jenga tower, which appears to remain stable as each block is removed, until the final crucial one brings it crashing down. Or, it is like Cassandra of Greek myth, whose fate was to have the gift of true prophecy but not to be believed. The shock of Russia’s 2022 invasion of Ukraine, which affected gas and electricity even more than oil, should still be felt. Yet repeated threats to oil security, particularly the near-total closure of the southern Red Sea to oil and gas tanker traffic, have not triggered major rises in oil prices. The complacency appears to derive from four confluent beliefs. First, that US shale output will respond flexibly to any disruption, and within a few months, rapidly increase output. Second, that the US Strategic Petroleum Reserve (SPR), along with large stocks held in China, will cover any short-term outages. Third, that the major spare capacity of Opec+, of nearly six million barrels a day, can be used to replace disruption from Iran, which exports only about 1.8 million barrels daily, nearly all to China. Fourth, that the flexible global market for oil and gas, and an expanded tanker fleet, which have coped well with the rerouting demanded by the Russian and Red Sea crises, will again rise to the challenge. These ideas are not wrong, but not the whole truth either. Forecasts for US shale suggest in the range of 400,000 to 600,000 barrels a day of US output growth next year. Sustained higher oil prices would increase this, but only later in the year, and by a few hundred thousand barrels a day. The SPR was drawn down by about half to meet the shock in 2022 and to moderate oil prices in 2023, and only slightly refilled since. With 383 million barrels stored now, and maximum initial withdrawal of 4.4 million barrels a day, it could meet a medium-sized market shock for several months. The spare capacity in Opec+ is concentrated in Saudi Arabia, the UAE and Iraq. The statement from Kataib Hezbollah, which began “If the energy war starts, the world will lose 12mn bpd of oil,” seems a clear reference to Saudi production capacity. 14.4 million bpd of crude, or a third of world seaborne supplies, and 21 per cent of global liquefied natural gas, flow from the Gulf. If Gulf shipping were harassed, the Red Sea threat makes it difficult for Riyadh to make full use of its alternative east-west pipeline to supply Asia. In any case, Opec+ states should consult their self-interest, not automatically bail the US out of a problem largely of Washington’s making. The problems of the oil market so far have not been a loss of much actual supply, but interruptions to certain trading routes – from Russia to Europe, and through the Red Sea. The gas crisis of 2022 showed how prices can rocket when total supply is physically reduced. There’s no need to predict a repeat of the crises of 1973-1974 or 1978-1980 to fear a serious energy shock. Oil and gas market complacency may have encouraged the laissez-faire of US and European diplomats, and that in turn fuels the brinkmanship of Jerusalem and Tehran. Robin M Mills is CEO of Qamar Energy, and author of <i>The Myth of the Oil Crisis</i>