Escalating Conflict Between Israel and Iran
The escalating conflict between Israel and Iran, with both sides firing missiles and drones, has unsettled the global energy markets. The Israeli attacks aimed at the Iranian energy infrastructure, including vital oil storage, refineries, and power plants. One of the targeted locations was the massive South Pars gas field, which is part of the world’s largest natural gas reservoir.
Iranian Energy Infrastructure
The South Pars gas field is located in the Iranian province of Southern Bushehr and is the source of the largest part of the gas produced in Iran. Iran shares control over the South Pars gas field with neighboring Qatar, which calls the reservoir under its control North Dome. The attack forced Tehran to partially expose production on the field, increasing the prospect that an extended conflict would endanger Iran’s energy generation and supply.
Iran’s Strong Trust in Hydrocarbons
Iran is an important player in the global energy sector. The country holds the second-largest natural gas reserves in the world and the third-largest crude oil reserves. Iran produced around 266.25 billion cubic meters of natural gas in 2023, with domestic consumption accounting for 255.5 billion cubic meters. The country extracts around 3.3 million barrels of crude oil and another 1.3 million barrels of condensate and other liquids daily.
Economic Impact of Sanctions
Despite its huge hydrocarbon reserves, a large part of Iran’s potential remains unused due to strict sanctions. The sanctions, aimed at containing Tehran’s nuclear and ballistic rocket programs, have crippled the country’s oil exports, banking, and shipping traffic. The measures have also severely restricted Tehran’s natural gas exports in recent years, effectively crippling the Iranian economy.
Power Failures in Iran
Decades of mismanagement and geopolitical tensions have tightened Iran’s economic problems. Despite its enormous oil and gas resources, Iran struggles with energy shortages due to outdated production, lack of investments in infrastructure, and overconsumption. The country is heavily reliant on natural gas for domestic consumption, especially for electricity generation. In recent years, the Iranian government has been forced to impose rolling power outages to deal with spikes in electricity demand.
Global Energy Market Implications
If Israel intensifies its targeting of Iranian energy systems, it could trigger an increase in global oil and gas prices. The conflict has already led to a rise in crude oil prices, although they have since decreased. The global energy market is closely watching the situation, and any further escalation could have significant implications for the global economy. Iran’s oil exports, which are a significant part of its state income and foreign exchange reserves, could be severely impacted, leading to further economic instability in the region.
