When Iran launched a barrage of 180 ballistic missiles at Israel a week ago — causing little damage or casualties — Israeli Prime Minister Benjamin Netanyahu warned that Tehran had made a "big mistake" and would "pay for it."

Iran's first large strike on Israel in April — featuring 300 drones and missiles — drew a limited counterattack. But Israeli officials have this time vowed a "significant retaliation," fueling speculation that Israel could target Iran's oil, military and nuclear infrastructure.

Netanyahu is under intense pressure from some senior Israeli officials, including former PM Yair Lapid, to strike Iran's "most painful target," while US President Joe Biden has called for calm, saying Friday (October 4) he would think about alternatives to striking Iranian oil fields if he were in Israel's shoes.

Oil prices leap due to geopolitical risk 

Since Iran's most recent strikes, oil prices have spiked sharply. Brent crude rose 17% in a week to $81.16 (€74), although prices have eased again after the Iran-backed Hezbollah militia signaled a readiness for a cease-fire in its conflict with Israel across the Lebanese border.

If Israel were to damage Iran's most critical oil assets, it could remove nearly 2 million barrels per day from the global oil market, leading some traders to speculate about a return to three-digit oil prices. The oil price last crossed the $100 mark shortly after Russia launched its full-scale invasion of Ukraine in February 2022.

Some fear oil prices could reach $200

"If you [Israel] take out oil Installations in Iran, easily you [oil prices] could go to $200 plus," Bjarne Schieldrop, chief commodities analyst at Swedish bank SEB told CNBC last week.

One of the world's largest oil producers, Iran's exports are subject to harsh international sanctions, as part of a protracted dispute with the West over Tehran's nuclear ambitions. Despite this, Iranian oil exports hit a 5-year high of 1.7 million barrels in May, according to energy analytics firm Vortexa. About 90% of its oil is delivered to China, much of it illicitly, through Tehran's so-called ghost fleet of nearly 400 tankers that disguise their movements to breach the sanctions.

"The Iranian economy is hugely dependent on the revenues it generates from its oil exports," Carole Nahkle, CEO of the London-based consultancy Crystal Energy, told DW. "Any disruption to those revenues will have severe impacts on the economy."

What oil facilities could Israel target?

If Israel did target Iran's oil infrastructure, an attack on Kharg Island would likely be the most crippling. The island is home to Iran's main oil export terminal, which plays a critical role in facilitating the country's official and clandestine oil trade.

Located in the Gulf, about 25 miles (40 kilometers) off the Iranian coast, Kharg Island has vast storage facilities, enabling it to handle nine-tenths of the Islamic Republic's oil exports. Most of Iran's tankers load from the Kharg facility, so any disruption could severely affect the country's ability to meet its export commitments.

Other possible targets include the Bandar Abbas oil refinery, located in the southern Gulf port city of the same name, which plays a key role in crude exports but also hosts military facilities. The Abidan refinery, in the southwest, with a capacity of 400,000 barrels per day, is vital for Iran's domestic consumption.

An Israeli attack on refineries might not spur oil prices as high as the Kharg export terminal but would cause more misery for ordinary Iranians, already struggling with high inflation, a weak currency and high unemployment as a result of years of Western sanctions.

The South Pars gas field, located in the Gulf, is the world's largest natural gas field, shared with Qatar. South Pars contains around 8% of the world's natural gas reserves and is a major revenue source for Iran. The Bushehr oil terminals, meanwhile, are located close to a nuclear plant of the same name, so Israel could achieve a double whammy if it decided to target that area.

Excess capacity keeps oil prices in check, for now

The rise in oil prices has been somewhat tamed by "plentiful supplies" in global markets, Nahkle said, noting how OPEC+ is sitting on almost 5 million barrels a day of spare capacity. At the same time demand is not growing fast, she said, as China's appetite for oil has been hurt by a sluggish economic recovery from the COVID-19 pandemic.

But those supplies could quickly dry up if spare capacity dwindles in the event of a wider regional conflict. Tehran has repeatedly threatened to blockade the Strait of Hormuz, a critical chokepoint where around 20% of the world’s oil supply passes through. This would add to the woes facing maritime trade after Iran-backed Houthis attacked shipping in the Red Sea over the past 11 months. Iran's foreign minister Abbas Araghchi this week threatened "an even stronger response" to any attack by Israel on its infrastructure.

Some speculators have even compared the worsening Middle East tensions with the 1970s oil crisis, triggered by a war between Israel and several Arab states that saw oil prices quadruple, which Nahkle thinks is unsound.

"Oil is not as important in energy consumption as it used to be in the 70s. Back then, it used to meet 50% of our energy needs worldwide," Nahkle told DW. "The Middle East is no longer the only producer," she added, noting how increased production by the United States, Brazil, Canada and Guyana has helped diversify supplies.

Israel more likely to target Iranian regime and military

Avner Cohen, professor of non-proliferation and terrorism studies at the Middlebury Institute of International Studies at Monterey, United States, doesn't believe that an Israeli attack on Iran is imminent. While strikes on Iran's oil facilities can "not be ruled out," Cohen believes Israel is more likely to target regime and military installations, including those belonging to the country's elite Revolutionary Guards.

"If Israel were to hit major economic interests such as oil facilities and oil refineries, damage to the global economy could be felt," he told DW, adding that he hoped Netanyahu "would be smart enough not to take that action."

Any lengthy jump in energy prices could upset efforts by central banks to tame decades-high inflation, particularly in the West. That could lead to the return of higher interest rates, which would weaken the global economy, hurting consumer spending and business investment.

With the US presidential election less than a month away and Washington stepping up the pressure on Netanyahu, Cohen thinks Israel's payback may likely be more symbolic, so as not to force Tehran into a further escalation that could draw in Arab neighbors and the United States.

"Both countries [Iran and Israel] do not want to create a full cycle of violence that would lead to a war of attrition. It would be bad for both countries, may force the US to intervene, and would bring even more chaos to the Middle East," he told DW.

"At the same time, there is no communication between the two sides, no clarity on what the red line could be, and there are very few interlocutors who could influence both sides. So the margin for error is very high."

Edited by: Uwe Hessler