US strike on Iranian nuclear facility could boost oil prices: experts

If Iran does not quickly agree to a nuclear deal, the US may decide to strike a key Iranian nuclear facility, which could cause a rise in oil prices in the near term and growing risks to tankers and regional energy facilities, experts said June 17.

Right now, this crisis can end if Iran accepts the US deal on the table, said Brett McGurk, who served in National Security Council and State Department positions under the Biden, Obama and Bush administrations, as well as the first Trump administration.

"Or they could not do that, and I think we're looking at the possibility of a US strike on Fordow," McGurk said at the Atlantic Council Global Energy Forum in Washington.

Fordow is an Iranian nuclear enrichment facility buried deep in a mountain.

If the Trump Administration uses the threat of a strike to try to get a deal, it must be prepared to back it up, McGurk said. "So, it's a deal, or it's a military strike. I think that's where we're headed."

Crude oil futures settled higher June 17 after US President Donald Trump signaled potential escalation in the conflict between Israel and Iran.

NYMEX July WTI settled $3.07 higher at $74.84/b and ICE August Brent climbed $3.22 to $76.45/b.

Possible price impacts

"Is Fordow going to get dismantled through an attack from the United States, or does it get dismantled through diplomacy? That's the only question I see remaining," said Amos Hochstein, Managing Partner of TWG Global and former national security adviser under President Joe Biden.

"Does the President want to do the attack? And would the Iranians understand the weakness of their position, that the logical position is for them to come and say, 'OK, I'll dismantle it. I understand the position I'm in.' They have not made logical decisions for the last 20 months. I don't know," said Hochstein at the event.

"The consequence of that is, do they say, 'if I go down, everybody goes down?' There are things they can do in the region that would be short-term impactful, not long term, but would rile markets," he said.

A US strike on Fordow would lead to an initial "pop" in oil prices, but otherwise, oil market participants may not price in additional risk unless oil facilities are actually hit, Helima Croft, managing director at RBC Capital Markets, said at the forum.

But if the Iranian regime feels its days are numbered, there is a risk to energy infrastructure in the region, particularly oil tankers, Iraq's oil production and regional energy facilities that are not fortified, she said.

For now, the market is wary of pricing in the risk of this conflict in part because key market participants were burned betting on a Russian supply disruption when the Russia-Ukraine war began, Croft said. And market participants may think that if attacks on oil facilities and tankers in the Middle East in 2019 did not lead to a sustained disruption, this conflict will not disrupt supplies either, she added.

"A lot of market participants were like, 'we've seen the worst out of this, and if it did not yield a sustained disruption in 2019 when Abqaiq was hit, I really don't need to be worried about it now, unless it actually happens,'" Croft said, referring Saudi Arabia's Abqaiq crude processing facility.

Bunker-buster bombs

The US has special munitions that can penetrate deep enough to destroy the Fordow nuclear site, Kenneth McKenzie, a retired general in the US Marine Corps and former commander of US Central Command, said June 16 during a briefing by the Middle East Institute.

The only airplane that can carry that bunker-buster bomb is theB-2 stealth bomber, and only US pilots can fly that airplane, McKenzie said. "So it's a uniquely American capability," he said.

One objective of the US will be to avoid a broader regional escalation, McGurk said at the forum. "I think that's actually a very achievable objective," he said.

Speaking earlier at the forum, UAE Minister of Industry and Advanced Technology Sultan Ahmed al-Jaber, called for de-escalation and diplomacy. "We call on all parties to show restraint, and reaffirm our belief in peace over provocation, calm over confrontation and progress through partnership," he said.

Trump has repeatedly said that Iran cannot have a nuclear weapon and that Tehran should have signed the nuclear deal offered by the US.

On June 16, Trump warned that the residents of Tehran should evacuate. On June 17, he said, "We now have complete and total control over the skies of Iran," according to a post on his Truth social platform. A few minutes later, he posted, "Unconditional surrender!"