Iranian flags fly as fire and smoke from an Israeli attack on Sharan oil depot rise
The oil risk premium fable
Israel’s attack on Iran caught oil firms with low inventories due to their efforts to protect themselves from falling prices, creating a perfect storm
Israel’s attack on Iran in mid-June began yet another oil market disruption, and firms were caught with their stocks down. Traders had accumulated substantive positions in options. For a precedent as to how the market reacts to such circumstances, one can look to the summer of 1990, when Iraq invaded Kuwait, or the early months of 2022 after Russia attacked Ukraine. Whether the disruption persists or dissipates will depend on developments in the Middle East. It could diminish if the two parties pull back, or it could worsen should Israel damage Iran’s production facilities or should Iran strike other producers in the Mideast Gulf. So far, the resulting increase in price volatility dictated t
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