Source : THE AGE NEWS
Israeli strikes on Iranian energy infrastructure have heightened fears the conflict will severely disrupt Iran’s oil production, driving up petrol prices in Australia and threatening a spike in inflation.
Iranian state media reported on Sunday that Israel targeted one of the country’s largest oil refineries, Shahr Rey, and also the separate Shahran fuel depot in the capital Tehran.
Fire and smoke rise into the sky after an Israeli attack on the Shahran oil depot in Tehran.Credit: Getty Images
In a separate attack, an Israeli strike over the weekend triggered a powerful explosion and fire at a natural gas processing facility linked to Iran’s immense South Pars field.
The attacks heighten the risk to oil infrastructure in Iran, a leading global producer and OPEC’s third-largest member. US crude prices surged as much as 14 per cent on Friday, before settling near $73 a barrel when markets closed.
If sustained, the rise in oil prices so far this month threatens to drive up Australian fuel prices at the pump by 12¢ a litre, according to economists at AMP.
The targeting of energy assets is a new front in the conflict, which escalated on Friday when Israel launched a wave of airstrikes against Iran’s nuclear program.
Richard Bronze, head of geopolitics at consultant Energy Aspects Ltd said Saturday’s attack raised “questions about whether Israel is going to target more Iranian energy infrastructure”.
Saul Kavonic, energy analyst at MST Marquee, said the strikes had “only impacted domestic oil infrastructure in Iran so far, so are unlikely to impact global supply”.
“But the fact energy infrastructure has already been targeted by both sides will have the market on edge and keep oil prices elevated,” Kavonic said.
Kavonic said that if Iran’s export infrastructure was hit in a subsequent attack, or Iran targets oil infrastructure in the gulf states or Strait of Hormuz – a key oil shipping choke point – then prices could rise even further.
Conflict between Israel and Iran has prompted concern global oil prices could surge. Credit: Justin McManus
“Higher oil prices will be directly felt at the pump, but also through electricity prices as gas prices spike,” he said.
About one fifth of the globe’s oil consumption and nearly a quarter of the world’s LNG trade flows through the Strait of Hormuz, so any disruption could have dire consequences.
“[That] poses the biggest upside risk to oil prices, but central banks including the RBA will likely look through any near-term boost to inflation from higher petrol prices,” AMP said.
Economist Saul Eslake said he thought the “probability that there would be a big spike in oil prices is at this stage fairly low”, as previous conflicts between Israel and Iran had not had a substantial impact on prices.
“If Israel were to inflict significant damage on its [Iran’s] oil producing facilities … then the supply of oil could be significantly curtailed, and therefore the price could go up a lot,” Eslake said.
Economist Saul Eslake says the probability of a sharp rise in oil prices depends on the extent of damage to Iran’s production capacity.Credit: Alex Ellinghausen
The price Australians pay at the bowser is largely driven by crude oil price in US dollars, and the exchange rate between Australian and US dollars.
“Big movements in that can appear in what motorists pay at Australian petrol pumps within a couple of weeks,” said Eslake. “It happens quite quickly.”
That may imperil headline inflation just months after the Reserve Bank of Australia began cutting interest rates, pegging the official rate down to 3.85 per cent in May.
However, the RBA’s preferred measure of underlying inflation, which ignores the top and bottom 15 per cent of price changes, would largely be immune to petrol price changes, Eslake said.
“The concern would only be if there were a sustained rise in fuel costs that ultimately led to an increase in the cost of transporting goods around the place that, in turn was passed on by, for example, supermarkets,” he said. “Or if it was reflected in an increase in air fares because of higher aviation fuel costs and things like that and that will take some time.”
Eslake said he was optimistic the current conflict would not upend underlying inflation “and it won’t have any bearing on the Reserve Bank’s judgment about what to do with interest rates”.
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