.
- A prolonged Strait of Hormuz disruption could remove between 8 and 10 million bpd from supply.
- Rising energy prices can fuel inflation and harm global economic growth.
- Major shipping companies have begun to suspend fleet movements.
Crude oil prices soared in Asia on Monday due to turmoil in the Middle East following US and Israeli military attacks on Iran.
Brent crude futures rose 13% to trade above $82 a barrel from Friday’s closing price of $72 in the first minutes of open trading, while those for U.S. benchmark West Texas Intermediate crude rose nearly 10% to cross $70 a barrel.
The price of Brent, the international crude oil benchmark, already rose last week before the strikes that began on Saturday.
With the resulting regional unrest, shipping is threatened through the Strait of Hormuz, through which around 20% of the world’s oil passes.
The key waterway is largely, but not completely, closed, as some Chinese and Iranian vessels are reported to have passed through it.
In such a situation, insurance costs become prohibitive, said Amena Bakr, head of Middle East and OPEC+ research at analyst firm Kpler, predicting the price could reach $90.
The main shipping companies have already confirmed that they are suspending the passage of their fleets through the route.
Trump’s ‘Achilles heel’
“While some alternative infrastructure could be used to bypass the Strait of Hormuz, the net impact of its closure would be a loss of between 8 million and 10 million bpd (barrels per day) of crude oil supply,” Jorge León, an analyst at Rystad Energy, said in a note on Saturday.
In theory, oil-importing countries have reserves, and OECD members must maintain 90-day oil reserves, but prices above $100 cannot be ruled out.
If the blockade of the Strait of Hormuz continues, “no matter how much excess capacity (in the strategic reserves) it is not going to fill that gap. That gap is simply too big,” Bakr said.
Another Kpler analyst, Michelle Brouhard, described high oil prices as “Trump’s Achilles heel.”
In his opinion, Iran is likely to try to keep oil prices high to force Trump to back down, as he promised his electorate low prices, at a time when the United States is already preparing for the midterm elections later this year.
‘Harmful effect’
Gas prices were also expected to soar on Monday as Qatar is a key exporter of liquefied natural gas, raising inflationary risks.
Rising hydrocarbon prices are bad for the economy.
The last time crude oil prices rose above $100 was at the start of the war in Ukraine. Gas prices also skyrocketed, playing a role in a prolonged period of rising prices.
Rising oil prices, rising energy prices, rising shipping costs and lost revenue from air travel could have “a detrimental effect on growth,” said economist Eric Dor of the IESEG School of Management in Paris.
“If it is a matter of three days, it is not serious. But if it is over a longer period, then it will have an additional recessionary effect,” he said. AFP.
