The GCC and oil market wait to see if Iran will respond to the US strikes

GULF COUNTRIES - In Brief 22 Jun 2025 by Justin Alexander

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Oil futures have begun trading in Asia and, so far, the response is muted. The September Brent contract nearly touched $80 on open, but within half an hour of trading, had eased back to $77 (Inv). There is still nearly $10 of risk premium in there compared with 10 days ago, but it remains close to the average last week. Trading volumes are low at this time of the week, of course. Betting markets, which have even lower volume but are more focused and usefully trade 24-7, saw the risk of Hormuz closure at 31% on last check (Poly), double where it was before the US strikes but down from a peak of 52% on Sunday morning US-time. I argued in my weekly report that closing Hormuz, through which about 20% of global oil and LNG pass (and nearly two-thirds of all sea-borne oil), would be a self-defeating gesture for Iran. It would trigger more extensive US attacks and would undermine its remaining alliances, including with the GCC/Iraq, which would suffer the most severe economic impact, as well as oil and gas customers such as China. Moreover, the US and allies would likely use overwhelming force to break any blockade quickly. Of course, Iran may not act rationally but, for now, the oil market seems to think it will. Options to avoid Hormuz: The Saudi East-West Pipeline has 5m b/d capacity. There had been plans to expand this to 7m, but I don't think the additional capacity is operational. Maybe some additional volumes could be trucked across Saudi Arabia or to Fujairah/Oman. Crude production is set for 9.5m bd in July. There is about 1.5m b/d in condensates/NGLs. Domestic consumption is about 4m b/d. Saudi exports are about 7.5m b/d (6.5m b/d crude, 1m condensates/products), al...