Oil tanker drone attack — how could this security threat affect the oil market?
On the 29th July 2021, an Israeli-linked oil tanker travelling across the Arabian Sea, was attacked by at least one drone. It is suspected that the attack was carried out by Iranian forces and it resulted in the death of two crew members, one of whom was a UK national. The Mercer Street vessel was attacked just off the coast of Oman, and the seriousness of this security threat is reflected by the UK’s response to the event, as the government reacted by deploying special forces, to investigate the attack.
The route that the tanker was following is one of the most important passages for oil exports globally and therefore, this attack not only presents itself as an isolated security threat, but also poses as a threat to exportation of oil on a whole, which could consequently affect the oil market. If you’re in the process of learning how to trade oil CFDs, then you’ll probably be aware that the market can be directly impacted by economic and political events. Therefore, we will delve into the details of the attack in this article, and look into the possibility of this security threat affecting the oil market and the value of the commodity.
The history of the feud between Israel and Iran
This is not the first time that Israel and Iran have been involved in oil vessel-related conflict and this is not the first time that an incident of this type has occurred in Oman. In 2019, on the Gulf of Oman, there were four oil tankers, from Saudi Arabia, the United Arab Emirates and Norway that were targeted, with US intelligence blaming the attacks on Iran.
The conflict between Israel and Iran has gone on for the past two years and over the duration of their feud, Israel has facilitated at least 10 attacks on Iranian vessels. It is also unknown how many times Iran has attacked Israel, since their involvement has been consistently denied. This dispute is now being regarded as a ‘shadow war’, since both countries are making aggressive moves, and gaining little, if nothing, in terms of security or assets.
The effect of previous conflicts on the oil market
The previous oil tanker attacks which took place on 2019, threatened the transportation of oil across the strait of Hormuz, which is the route that tankers take from the Gulf of Oman to the open sea. This is the most crucial passage in the world with regards to oil exportation, since in 2016, 18.5 million barrels of crude oil were carried across this section of the sea each day.
Oil makes the world go round, almost literally, as we are so reliant on it for transportation purposes, since it is refined to produce the likes of petrol and diesel. As a result, global economies are heavily reliant on the exportation of oil and in response to the four attacks carried out in 2019, the price of Brent Crude oil rose more than 4% in the days following the events. Political conflicts involving Iran and threats to their economy can also have a large effect on the landscape of the oil market. This is because Iran is one of the largest global producers of oil.
Could the recent attack affect the oil market?
Using history as a guide, the most recent attack that took place at the end of July 2021 could affect the oil market, since traders could fear an escalation between the two countries and further threats to tankers passing through the Gulf of Oman. Following the involvement of British special forces, who are attempting to investigate the attack, and the blame that was placed on Iran by both the UK and the US, Iran responded, stating:
“[It would] not hesitate to protect its security and national interests, and will immediately and decisively respond to any possible adventurism.”
This threat, along with the level of tension between Iran and Israel, suggests that this attack could be the first in a successive thread of threats led by the country. This uncertainty could subsequently cause the oil markets to react, resulting in a shift in prices, in anticipation of disruption to the exportation of oil.