The Iran war puts Gulf security and market buffers in focus
Since the 1970s, most Gulf oil has been priced in US dollars, Gulf producers have invested a large share of their revenues in US assets, and the United States has been the region's main security partner. In a commentary published on 5 October, Nick Giambruno of International Man describes these elements as a bargain and argues that the Iran war puts it under strain. If Gulf producers come to doubt American protection, he contends, they may seek an accommodation with Iran and closer ties with China, which offers a yuan crude futures contract and a route from yuan into physical gold.
Shifts of that kind would unfold over years rather than weeks. In the shorter term, the effects of the war show up in pricing and trade flows. Saudi Aramco cut its November price for Asian buyers to the widest discount since June 2020 and raised it for Europe by $3 a barrel. Chinese refiners that have lost Iranian supply are paying premiums for alternatives such as Russian ESPO crude.
The market also has less room to absorb disruption. Goldman Sachs estimates that Gulf exports are back at 2025 levels, and Brent remains above $100 a barrel. Aramco chief executive Amin Nasser said on 5 October that less than 6 billion barrels of commercial inventories remain, most of them not practically available. Freight now makes up about 27% of the delivered cost of Gulf crude, against 3% in January, and EU gas storage stood at 73.6% on 10 October, against 82.9% a year earlier.
