Assessing the Impact on Energy Infrastructure, Production, and Global Oil Supply Dynamics

Military actions between Iran and Israel have raised concerns about potential damage to the region's crucial oil and gas infrastructure. These strikes have the potential to disrupt energy production and supply.

On June 14th, Israel targeted an installation at the South Pars offshore gas field. Iran subsequently suspended some production at this site. South Pars is part of the world's largest natural gas reserve, which Iran shares with Qatar. The attack specifically affected four units of Phase 14 of South Pars, located approximately 200 kilometers from Qatar's installations. Many of Qatar's installations are joint ventures with international companies.

Additionally, Israel struck a fuel depot and an oil refinery near Tehran on the same day, according to Iranian reports. While Iranian authorities stated the situation was under control, the Bazan Group, Israel's largest oil refinery in Haifa, was shut down on June 16th after its power station was damaged in an Iranian attack. This refinery has a significant crude processing capacity.

South Pars is a major component of the world's largest natural gas reservoir. While Iran shares this reservoir with Qatar, most of the gas produced is used domestically due to sanctions and technical limitations, although some is exported. In 2023, Iran exported a substantial amount of gas. The entire reservoir holds an enormous amount of usable gas, enough to meet global needs for over a decade or to supply the United States with electricity for many years.

Iran is a significant oil producer within OPEC. Its production facilities are primarily located in the southwest, particularly in Khuzestan province, and in Bushehr province for gas and condensate from South Pars. The majority of its crude oil exports are shipped via Kharg Island.

U.S. sanctions, initially tightened in 2018, significantly impacted Iran's oil exports. However, exports have since rebounded, driven by strong demand from China. Iran is exempt from certain OPEC+ output restrictions, and China does not recognize the sanctions imposed on Tehran. Analysts suggest that other OPEC members, such as Saudi Arabia, could potentially compensate for any decrease in Iranian supply by utilizing their spare production capacity.