DUBAI — Oil is in the crosshairs as the prospect of confrontation brews between the U.S. and Iran. At least, that's how Iranian officials would have it.
A top military aide to Iran's supreme leader Ayatollah Ali Khamenei, Yahya Rahim Safavi, warned earlier this month that "The first bullet fired in the Persian Gulf will push oil prices above $100." He added, "This would be unbearable to America, Europe and the U.S. allies like Japan and South Korea."
Brent crude jumped 3% in Thursday morning trade on the news of a U.S. military drone shot down over the Strait of Hormuz, the critical conduit for 30% of the world's seaborne oil. Iran's Revolutionary Guards claim to have shot it down with a missile, describing the downing as "a clear message" to Washington.
Both a major war and a more limited confrontation "would have a significant impact on commodity prices and could trigger instability beyond the Gulf," Henry Rome, senior analyst at political risk consultancy Eurasia Group, said in an email note Wednesday.
"A limited war would likely push oil prices above $100 per barrel, while a major confrontation would likely drive prices above $150," Rome said. But not all experts agree.
More than a million barrels of oil per day have been wiped off the market as U.S. sanctions, imposed after the Donald Trump administration withdrew from the 2015 Iran nuclear deal last year, endeavor to bring the exports of OPEC's third-largest producer to zero. This has contributed to the crippling of Iran's economy, leading many analysts to believe that a series of recent tanker attacks in the Persian Gulf is Tehran's way of fighting back. Iran denies involvement.
Iran has responded to the sanctions by threatening to ditch its obligations under the nuclear deal — which had promised economic relief in exchange for limits to its nuclear development — and return to higher levels of uranium enrichment.
The suspected tanker attacks in the Gulf of Oman and strikes in Saudi Arabia that are being blamed on Iran have now pushed tensions to new highs, and prompted the U.S. to deploy more troops and military hardware to the region. In an area responsible for the shipment of one-third of the world's seaborne oil, just how high could military confrontation — or indeed, an outright war — send the price of crude?
Not as high as you might think, according to some experts.
"I think that $100 per barrel is ambitious," Stephen Brennock, an oil analyst at PVM Oil Associates in London, told CNBC via email on Wednesday. He pointed out that the oil market has "more or less shrugged off" the disappearance of a further 500,000 barrels per day of Iranian oil since Washington terminated its sanctions waivers in May.
"That said, any direct conflict between the U.S. and Iran would further reduce shipments from the OPEC nation and may even disrupt exports from other Persian Gulf producers," Brennock noted. Still, he expects oil will struggle to return to triple-digit prices — thanks in large part to the U.S.-China trade war — and predicts an $80 to $90 per barrel range as the most likely target.
"In the (unlikely) event of any direct conflict and subsequent disruptions to supplies in the region," Brennock added, "global spare capacity is ample and U.S. production is steadily increasing. This should act as a buffer to any supply shock thereby limiting the prospect of a return to $100 oil."
And amid fears of conflict triggering higher oil prices, it's worth remembering that Brent crude is still well below its highs of the last year, despite mounting Middle East tensions and supply disruptions in Venezuela and Libya. Brent crude was trading at $63.43 a barrel at 10:30 a.m. London time Thursday, up $1.65 and still far from its four-year high of more than $80 last fall.
Others believe the market may seriously tighten resulting in a potentially dramatic price spike, but they doubt whether it will last.
"Oil has been $100 per barrel before and so, in case of conflict, the real price might be far higher," said Michael Rubin, an Arab affairs expert at the American Enterprise Institute in Washington, D.C.
Much depends, he said, on whether other countries can make up Iran's shortfall. In the event that conflict closes the all-important shipping artery that is the Strait of Hormuz, vital oil shipments from Saudi Arabia and Iraq, OPEC's largest and second-largest crude producers, respectively, would have a hard time getting to market.
Still, "the spike won't be long-lasting," Rubin believes, "especially as fracking (in the U.S.) becomes economical whenever oil goes upwards of $60 per barrel."
It would depend very much on what actually happens in a hypothetical war — a limited one "would probably take nearly all Iranian oil off the market and add $10 to the price," says Robin Mills, CEO at Dubai-based Qamar Energy. A wider conflict with attacks on tankers would be a lot more serious.
On Wednesday, a missile hit an oil camp in Iraq's oil-rich southern city of Basra, the site of a number of foreign oil companies, including Exxon. The source of the missile has not yet been found and no one was killed, but Exxon is expected to evacuate its staff.
"If Iran retaliated in Iraq, and halted a lot of Iraqi oil exports, then prices could go to $100," Mills said. But that doesn't cover scenarios that escalate into a wider regional war or in which the U.S. actually invades or tries to occupy parts of Iran, Mills says, something he sees as very unlikely.
But it all comes down to whether there is major damage to critical energy infrastructure, says Helima Croft, global head of commodity strategy at RBC Capital Markets. If facilities like Saudi Arabia's Abqaiq, the world's largest oil processing facility, were seriously hit, "we would be off to the races," she told CNBC in an email. Attacks on oil tankers would also spur a major oil price breakout.
But the market for now is "pretty complacent about the risks," Croft noted, describing oil traders as viewing Middle East tensions as "more of the same" and being far more focused on how demand is being hit by the trade war and rising protectionism between global trading partners.
For now, fear of war doesn't seem to be in the market. "I think people are waiting to see if there is a real disruption to Middle East energy supplies," Croft said.