Mohammed bin Salman’s recent comment about Iran sending oil prices to ‘unimaginably high numbers’ may not be as ridiculous as it first sounds.

And while MBS is known to engage in hyperbole when it comes to the threat Iran poses, recent events suggest he may have a point here. But what are these unimaginably high numbers he is suggesting? $100 per barrel? $300 per barrel? And what would the world look like if prices really went that high?

The recent drone attacks on Saudi Aramco’s oil facilities, which took 5.7 million bpd offline, have been largely attributed to Iran – even if the Houthis have claimed responsibility for them. This attack was evidence that Iran does have the means to strike at the heart of Saudi oil structure and, in an all-out war, it is reasonable to suggest a strike on those facilities could be far more devastating. In that scenario, those 5.7 million bpd could be taken offline permanently – leaving the global oil industry in a very precarious position.

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While this may be a hypothetical scenario, it is one that the September 14th attacks proved were possible, and it is in the light of those attacks that MBS’ words can be fully understood. A destructive attack taking almost 6 million bpd in oil production offline – permanently - would certainly have a much deeper impact on oil prices than the actual attack on Saudi facilities did. Following that attack, Brent briefly topped $70 a barrel and then retreated quickly on assurances from Riyadh. Then the international benchmark rose sharply once again - albeit not as high - when reports emerged that repairs might actually take months rather than weeks. But in the end, the panic was short-lived, and as newer information came in regarding Saudi Arabia’s ability to quickly bring production back online, oil prices eased back down, almost like it didn’t happen at all.

Days after the attacks, some analysts were forecasting $100 Brent prices, but there were also more sober minds that said there was no reason for oil to rise so high given that some OPEC+ members could increase production and that US shale would do the rest. But this reliance on US shale and other OPEC members are perhaps a little optimistic in such a scenario.

Iran and the UAE are the two OPEC members with the highest potential spare capacity, but if Iran and the UAE were at war they would likely see their production drop even further. That means that nearly all of the 5.7 million bpd would have to be replaced by the US, something that even the most ardent shale supporter would struggle to believe.

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The United States has increased production substantially in the last year, but that upwards momentum may not be sustainable. In its latest Short-Term Energy Outlook, the EIA has estimated that production has risen by 1.2 million bpd from 2018. But that growth has been tempered by recent poor results from some of the US most promising shale basins.

The reality is, there is no single oil producer that could increase production by 6 million barrels per day, and that 6 million bpd is realistically a conservative estimate if a full-blown war were to occur.

If 6 million bpd or more were taken offline for any significant timeframe, which could be caused by anything from the very real possibility of a closing of the Strait of Hormuz to another attack on Saudi Aramco oil infrastructure, oil prices would indeed spike to ‘unimaginable levels’.

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If it were unclear when production could resume, a mad scramble would ensue to see who could pick up the slack - not to keep prices down, but to see who could steal the market share. Countries would undoubtably do their best to ramp up production, but it would be insufficient. The global Strategic Petroleum Reserves would all be tapped to keep the market supplied, but that is very much a short term solution.

Major oil consumers such as China and India would be desperately searching for alternate suppliers. But more importantly, these major consuming countries would be crushed if oil prices soar beyond $100. It’s hard to tell how much oil China has in storage, and if they could cushion the blow, but they would use up whatever they did have rather quick.

India is already trying to beef up its oil in storage to brace for trouble in the Middle East, and it is working on building additional storage sites that will be ready next year. India’s goal is to eventually have 90-100 days of oil in storage, to sustain its 80% import rate.

Chinese data is more murky, but it is widely accepted that China has been beefing up its oil in storage, taking advantage of moderate oil prices.

Japan and South Korea are also large importers, with Japan having sizable reserves somewhere near 300 million barrels.

Despite the release from various SPR’s, the long-term reality of oil markets would keep prices extremely elevated until new production came online, or until demand destruction took place.

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But how high could oil prices really go? In the event of 6-month long disruption of 6 million bpd, $100 oil certainly seems possible, but what if the 20 million bpd Strait of Hormuz gets cut off for a number of days or even weeks? Or what if production capacity in several other Gulf nations gets disrupted? A supply crunch the size of 20 million bpd could potentially send oil to $300. But oil prices don’t have to go that high to seriously upend high consumption economies.

India has been quick to sound the alarm every time Brent has climbed higher than their pain threshold, which is lower than $80. This would inevitably lead to demand problems. We have seen this several times already: oil prices jump, demand slackens, oil prices fall, demand improves, and then the global economy keeps growing.

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The largest buyers of crude oil in the world would have a hard time sustaining growth if oil is trading close to $100, let alone if oil trades at $200 or even $300 per barrel. And the time it would take for oil prices to come back down again would be painful.

In the light of this historical evidence, MBS’ thinly veiled warning about oil prices can largely be seen as sabre-rattling, but the prospect of ‘unimaginably” high prices is perhaps not as farfetched as some analysts would have you believe.

This article was originally published on Oilprice.com