Iran exports some 1.6 million barrels of oil a day, most of it going to China, where privately owned refineries are less concerned about the U.S. sanctions that prevent Iran from selling its oil elsewhere. If that supply is disrupted, Chinese customers would look elsewhere for oil on the global market, potentially driving up prices.
Another question is around the Strait of Hormuz, through which 20% of global oil supply pass through each day. Middle East exporters Saudi Arabia, Iraq and the United Arab Emirates send most of their exports through the strait. Iran could make the Strait of Hormuz unsafe for commercial traffic, which could spike oil prices above $100 per barrel, according to McNally.
“A prolonged closure of the Strait of Hormuz is a guaranteed global recession,” McNally said.