Oil markets are entering a new phase of uncertainty after the US joined the war between Iran and Israel, with experts warning of triple-digit prices.
Investors are closely watching Tehran’s reaction to the US attacks on its nuclear facilities, with Iran’s foreign minister warning that his country retains “all options” to defend its sovereignty.
Oil futures rose more than 2% in early hours in Asia. US WTI crude rose more than 2% to $75.22 a barrel, while global benchmark Brent rose nearly 2% to $78.53 a barrel.
“There is a real risk that the market will experience unprecedented supply disruptions in the coming weeks, of a much more severe nature than the 2022 oil price shock following the war in Ukraine,” said MST Marki senior energy analyst Saul Kavonic.
Threats to block the Strait of Hormuz, after Iran’s parliament approved its closure, have further heightened market jitters.
This time, it seems different, given the barrage of missiles fired for more than a week and now direct U.S. involvement.
The strait, which connects the Persian Gulf to the Arabian Sea, is a key artery for global oil trade, with about 20 million barrels of crude and refined products passing through it daily. That’s nearly a fifth of global oil shipments.
If Iran closes the Strait of Hormuz, Western powers are likely to “directly engage” and try to reopen it, Kavonic told CNN, adding that oil prices could reach $100 a barrel and retest 2022 highs if the closure lasts more than a few weeks.
Kavonic’s sentiment is echoed by other industry experts.
“A prolonged shutdown or destruction of key energy infrastructure in the Gulf could push crude prices above $100,” said Bob McNeilly, president of Rapidan Energy Group.
While an attempt to block the Strait of Hormuz between Iran and Oman could have profound consequences for the broader economy, threats to block the strait have been largely rhetorical, and experts say it is physically impossible to do so.
Iran threatened to close the Strait of Hormuz in 2018 amid heightened tensions after the United States withdrew from the nuclear deal and reimposed sanctions. Similar threats were made in 2011 and 2012, when senior Iranian officials — including then-Vice President Mohammad-Reza Rahimi — warned of a possible closure if Western countries imposed more sanctions on Iran’s oil exports over its nuclear activities.
