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- A prolonged disruption of the Strait of Hormuz could deprive supply of 8 to 10 million bpd.
- Rising energy prices could fuel inflation and hurt global economic growth.
- Major shipping companies have started to suspend fleet movements.
Crude oil prices rose in Asia on Monday due to unrest in the Middle East following US and Israeli military strikes on Iran.
Brent crude futures jumped 13% to trade above $82 a barrel from Friday’s closing price of $72 in the first minutes of opening trade, while those on U.S. benchmark West Texas Intermediate crude rose almost 10% to cross $70 a barrel.
The price of Brent, the international benchmark for crude oil, had already increased last week in the run-up to the strikes which began on Saturday.
With the resulting regional unrest, shipping is under threat via the Strait of Hormuz, through which around 20% of the world’s oil passes.
The main waterway is largely closed, but not completely, as some Chinese and Iranian ships are believed to have passed through.
In such a situation, insurance costs become prohibitive, said Amena Bakr, head of Middle East and OPEC+ research at analysts Kpler, predicting the price could reach $90.
Major shipping companies have already confirmed that they are suspending the passage of their fleets along the route.
Trump’s ‘Achilles heel’
“Even if alternative infrastructure could be used to bypass the Strait of Hormuz, the net impact of its closure would be a loss of 8 to 10 million b/d (barrels per day) of crude oil supply,” Jorge Leon, an analyst at Rystad Energy, said in a note Saturday.
In theory, oil-importing countries have reserves, with OECD members required to maintain 90-day oil stocks, but prices above $100 cannot be ruled out.
If the blockade of the Strait of Hormuz continues, “even if the available capacity (in strategic reserves) will not fill this deficit. This deficit is simply too big,” Bakr said.
Another Kpler analyst, Michelle Brouhard, called high oil prices “Trump’s Achilles heel.”
She said Iran will likely seek to keep crude prices high to force Trump to back down, as he promised his electorate, at a time when the United States is already preparing for midterm elections at the end of this year.
“Adverse effect”
Gas prices are also expected to soar on Monday, with Qatar a key exporter of liquefied natural gas, increasing inflationary risks.
The rise in hydrocarbon prices is harmful to the economy.
The last time crude prices exceeded $100 was at the start of the war in Ukraine. Gas prices also climbed, playing a major role in a prolonged period of rising prices.
Rising oil prices, energy prices, increased transport costs and loss of air travel revenue could have “a detrimental effect on growth”, said economist Eric Dor of the IESEG School of Management in Paris.
“If it’s a matter of three days, it’s no big deal. But if it’s over a longer period, then it will have an additional recessive effect,” he said. AFP.
