Little is known about what might happen next, but an Israeli attack on Iran is likely to be imminent, write Frances Goh, Ieva Paldaviciute and Matt Scotland
Iran's missile attack against Israel at the start of this month has placed the former country's energy exports under threat, as Israel and its ally the US still weigh retaliatory action while trying to avoid all-out war. This includes Iranian LPG trade — done largely on a covert basis with Chinese buyers — which has continued to thrive this year despite intensifying US scrutiny.
US president Joe Biden held a call with Israeli prime minister Benjamin Netanyahu on 9 October to discuss Israel's response to Iran's attack. This includes the possibility of striking oil and gas facilities, Biden said on 3 October. Little is known about what might come next, but Israel's defence minister Yoav Gallant said after the call that its attack on Iran would be "deadly, precise and above all surprising".
The escalation in the region had little impact on oil prices given the lack of any effect on physical supplies until 7 October, at the one-year anniversary of the attack by Gaza-based Hamas militants on Israel, when Ice Brent crude rose above $81/bl. But this could change if Israel makes good on its threat to directly target Iranian oil infrastructure and, especially, if Iran retaliates with indiscriminate attacks on oil tankers and infrastructure in the Mideast Gulf.
The threat for the LPG market is lower than it is for crude, but if Israel were to target Iran's gas processing plants or the two refineries in Bandar Abbas — PGS and Bandar Abbas — which yield over 20pc of the country's refinery LPG, the ramifications could still be substantial, consultancy FGE's Middle East managing director Iman Nasseri says. Iran's three LPG terminals could also theoretically be attacked, preventing the country's seaborne exports, but "I doubt they will be", he says.
Iran's LPG production and exports have surged in spite of US sanctions over the past four years. Exports increased to nearly 7.9mn t in January-September from just under 7.8mn t a year earlier, Kpler data show, with significant recent growth stalled by heavy maintenance at the giant South Pars field. Iran's deliveries to south China rose to 5.4mn t from 5mn t, according to Kpler. Iran's LPG exports stood at around 802,000t in September, Kpler data show. But market participants estimate them to have been closer to 900,000-1mn t. This is because of the difficulty in tracking vessels loading and shipping from the country.
Iran's buoyant LPG trade is also unlikely to be disrupted by tightening US sanctions or the potential return of Donald Trump as US president "unless gas processing plants or terminals are destroyed", Nasseri says.
Iran's LPG cargo availability improved this month after the completion of maintenance, pressuring prices at the same time as other Mideast Gulf suppliers' availability fell and values rose. But this did little to boost sales in a quiet market because Chinese buyers were away for the Golden Week holiday over 1-7 October. Chinese demand for Iranian LPG appears to have shrunk anyway on waning margins at the former country's ethylene cracker and propane dehydrogenation plants given high outright prices.
