Should be a short sputter in pipelines

The fallout of US-Israeli strikes on Iran on energy markets is likely to increase short-term volatility rather than long-term fundamentals of the energy market. Iran has limited capability to sustain a blockade of the Strait of Hormuz, given the US military presence in the Persian Gulf, and Tehran will isolate itself further by missile strikes on its energy-exporting neighbours. Disruption to Iran's oil exports will have a marginal impact on global crude prices, which may be magnified by the closure of the shipping lanes. Natural gas faces greater volatility due to low stockpiles in importing nations.

India is particularly susceptible to diversion of the energy trade through the Persian Gulf because of its dependence on imports from the region. It is also affected by rising shipping costs on account of its maritime energy imports. Retail prices have, however, remained frozen for an extended period as India has purposefully diversified its energy sources to lower concentration risk. Glut in the global energy market should cushion the impact of escalating tensions in West Asia.

Iran's ability to escalate the conflict is limited by behavioural changes in its regime that the US is hoping to achieve. A further degradation of its military capabilities would challenge its national integrity. Pressure is mounting in Iran over economic hardships brought on by sanctions. A successor regime may find its options for dealing with restive ethnic minorities shrinking if it significantly loses air power. Trump should have support at home so long as he does not commit troops on the ground in Iran. After Venezuela, Iran may provide him with another success in strategically choking China's energy sources.