The Coming Oil Crash: Middle East Conflict Could Cripple Global Supply

Freedom Financial News | Posted Oct 22, 2024

Dear Reader,

A storm is brewing in the Middle East, and it could send oil prices through the roof, destabilize economies, and plunge the world into a depression. The potential conflict between Iran and Saudi Arabia—two of the world’s biggest oil producers—may soon reach a boiling point, with catastrophic consequences for the global energy market.

  • Middle East Tensions Could Trigger Oil Crash: A potential conflict between Iran and Saudi Arabia threatens to cut off up to 20 million barrels a day, sending oil prices skyrocketing to $300 or more.
  • U.S. May Dodge the Crisis, But China Will Suffer: The U.S. could cap oil prices domestically by halting exports, while China, the largest consumer of Persian Gulf oil, would face severe shortages.
  • California Faces a Unique Energy Crisis: Unlike the rest of the U.S., California’s reliance on imported oil could lead to $10-a-gallon gas, causing economic upheaval on the West Coast.

This scenario has been speculated on for years: the idea that Iran could close the Strait of Hormuz, cutting off a key artery for global oil transport. But, historically, Iran has relied on that same strait to export its own crude, making such an extreme move unlikely unless they had no other choice.

Recent events have changed the calculus. Following Iran’s missile attacks on Israel, tensions have escalated. Israel has indicated it will retaliate, and among the potential targets is Iran’s oil infrastructure. A key point of concern is Kharg Island, which handles the majority of Iran’s oil exports. A targeted strike on this site could shut down Iran’s ability to export oil in less than an hour, creating a volatile and desperate situation for the Iranian regime.

A New Gulf War Could Be on the Horizon

If Iran’s oil exports are crippled, the regime may feel backed into a corner. In such a desperate situation, it is conceivable that Iran could retaliate against Saudi Arabia, escalating into a regional conflict. This scenario has been predicted: Iran could invade Iraq and Kuwait, pushing southward toward Saudi oil fields.

The southern half of Iraq, with its Shia population, has historically had pro-Iranian leanings, especially since the U.S. ousted Saddam Hussein. Whether an Iranian invasion would face significant resistance depends on the involvement of other international powers.

But Iran doesn’t need to launch a full-scale invasion to disrupt the global oil supply. With its arsenal of missiles, Iran has the capability to target Saudi oil export hubs, which lie dangerously close to the Persian Gulf. If Iran were to attack, it could take out up to 12 million barrels of oil per day, sending shockwaves through the energy markets.

Once Saudi Arabia is drawn into the conflict, the stakes increase dramatically. What starts as 10 million barrels of lost crude could quickly escalate to 20 million barrels per day, wiping out a massive chunk of global supply. The result? Oil prices could surge to over $300 a barrel.

The U.S. Could Escape Relatively Unscathed, While China Faces Disaster

While much of the world would suffer from this oil catastrophe, not all countries would be equally affected. The United States, thanks to the domestic oil boom from the Shale Revolution, has built up a significant production capacity. In the event of an oil price spike, the U.S. government could halt crude exports, creating a surplus in the domestic market. This would keep U.S. oil prices in check, capping them around $60 to $70 a barrel.

However, the rest of the world wouldn’t be so lucky. As global prices soar to $300 per barrel, many economies could collapse under the strain. A global depression would follow while the U.S. remains relatively stable, riding out the crisis with a manageable energy market.

China, on the other hand, would face severe consequences. As the largest importer of crude oil from Saudi Arabia, Kuwait, the UAE, and Iran, China’s energy supplies would be decimated. Without access to Persian Gulf oil, China’s economy would grind to a halt, leading to a catastrophic economic crisis.

California’s Unique Oil Crisis: $10 a Gallon Gas on the Horizon

While much of the United States could stabilize during this crisis, California would face a unique disaster. The state’s strict regulations and geographical isolation have left it disconnected from the domestic oil boom. California imports much of its oil from the Persian Gulf—the same region threatened by the impending conflict.

In this scenario, while the rest of the U.S. enjoys relatively low oil prices, California could see gas prices spike to $10 a gallon. The West Coast would be plunged into economic chaos, creating a stark divide in the economic outcomes between different regions of the country.

A Looming Crisis That Could Hit Any Day

This once-distant threat is now a very real and imminent possibility. The entire scenario hinges on Israel’s decision to retaliate against Iran. A single strike could set off a chain reaction, leading to a full-blown conflict in the Persian Gulf. Iran could retaliate by targeting Saudi Arabia, and the global oil supply could evaporate almost overnight.

Oil prices would soar, economies would collapse, and the world could enter a global depression. The question isn’t if it will happen—it’s when.

When it does, the consequences will be felt worldwide, and the fallout will be devastating.

Freedom Financial News