Daily Petroleum

Israel seeks negotiations with Lebanon as bombings threaten truce with Iran

Iran’s president, Benjamin Netanyahu, announced yesterday that he instructed officials to initiate direct peace talks with Beirut as soon as possible, including the demilitarization of Hezbollah — one day after Israel carried out the largest bombings against Lebanon since the conflict began. Iran signaled that the ceasefire will only hold if Lebanon is included, while the country’s central regime pledged to take the management of the Strait of Hormuz to “a new phase.”

Why does it matter? Whether Lebanon is included in the ceasefire is the key factor determining if Hormuz will reopen to normal traffic. While Israel and the U.S. treat the conflict in Lebanon as a separate front, Iran insists they are inseparable, leaving the truce ineffective in practice. The market understands that a full reopening of Hormuz requires a broader political solution — not just a partial ceasefire.

Background: The prevailing view is that the geopolitical situation remains fragmented: there is a formal ceasefire between the U.S. and Iran, but armed conflict continues in Lebanon and Hormuz remains blocked. Prospects for Israel–Lebanon talks in Washington next week are a positive signal, but Hezbollah has already rejected direct negotiations with Israel, limiting short-term optimism.

• On the first day of the ceasefire, only one tanker and five bulk carriers transited the strait. Trump stated that oil will “flow again,” without detailing timelines, and warned that Iran “must not charge tolls” for vessel passage.
• The Iranian Parliament and Pakistan insist that Lebanon, Yemen, and Tehran-aligned groups are integral parts of the agreement.

What to watch: The meeting in Washington next week will be an important barometer. If Lebanon agrees to participate and there are signs of a bilateral ceasefire, the market could price in lower geopolitical risk. The core risk, however, is Hezbollah obstructing diplomatic progress — keeping the risk premium elevated and preventing normalization of physical flows.

• At the same time, market attention will also turn to peace negotiations between Iran and the U.S., scheduled to take place over the coming days.

 

Saudi Arabia confirms production and logistics impacts from Iranian attacks

SPA — Saudi Arabia’s state news agency — reported yesterday that attacks on the kingdom’s energy infrastructure reduced crude production capacity by around 600 kbpd, in addition to cutting transport capacity through the pipeline connecting fields to the Red Sea by approximately 700 kbpd. The Manifa and Khurais fields were directly hit, as were refineries in Jubail, Ras Tanura, Yanbu, and Riyadh — also affecting LPG and natural gas liquids exports.

Why does it matter? The East–West Pipeline is currently Saudi Arabia’s only crude export route with the Strait of Hormuz blocked. By simultaneously hitting production and the alternative export route, the attacks removed the safety valve the market expected to remain available during the conflict.

Background: The combination of a blocked Hormuz and damage to the alternative land route represents a multi-layered supply shock. Around 50 infrastructure assets across the Gulf have already been damaged since the conflict began, with approximately 2.4 mbpd of refining capacity offline.

• The Manifa and Khurais fields together account for roughly 600 kbpd of Saudi production capacity, with timelines for full restoration still undefined. Refineries were also hit, directly impacting refined product exports.

What to watch: Upward pressure on physical prices should persist as long as Saudi capacity remains impaired. Even if the strait reopens, the supply gap created by damage to production and refining could take weeks to be absorbed. The upside risk is further attacks on the port of Yanbu, on the Red Sea, or other critical nodes in Saudi Arabia’s export chain.