Oil prices surge after US strikes on Iran with Strait of Hormuz status in focus
Oil futures saw a significant surge of up to 5% on Sunday night as US strikes on Iran’s nuclear sites heightened concerns about a possible supply shock. The fear of a disruption in oil supply was exacerbated by the possibility of Iran closing the vital maritime chokepoint, the Strait of Hormuz. Brent crude, the international benchmark, shot up by as much as 5.7%, reaching above $80 per barrel, while West Texas Intermediate futures climbed over 4%, hovering around $77 per barrel.
The escalation in oil prices followed a week of gains driven by the conflict between Israel and Iran. Traders were closely monitoring Iran’s potential retaliatory actions in response to the US’s direct involvement in the region. According to state media reports, Iran’s parliament voted to close the Strait of Hormuz, a crucial waterway responsible for about 20% of global oil flows. The final decision on shutting down the strait lies with Iran’s Supreme National Security Council and Supreme Leader Ayatollah Ali Khamenei.
The possibility of a prolonged disruption in oil exports through the Strait of Hormuz has raised concerns among experts. Andy Lipow, president of Lipow Oil Associates, warned that oil prices could easily reach $100 per barrel if exports are affected. JPMorgan analysts also projected that a closure of the strait could push oil prices to $120-$130 per barrel under a severe outcome.
The impact of a potential escalation in the conflict extends beyond oil prices. If crude oil prices reach the projected levels, consumers could see a significant increase in gasoline and diesel prices, potentially rising by as much as $1.25 per gallon. Andy Lipow suggested that the national average gasoline price could reach around $4.50 per gallon, with California residents facing prices closer to $6.00 per gallon.
In addition to the threat of the Strait of Hormuz closure, analysts are also considering other retaliatory moves from Iran, such as supporting Yemen’s Houthi rebels in attacks on commercial shipping and targeting export facilities in neighboring countries if Iran’s oil infrastructure is attacked.
While past military conflicts involving Israel have not had a lasting impact on oil prices, events directly affecting major oil-producing countries have led to sustained fluctuations in oil markets. Regime changes in oil-producing nations have historically driven substantial oil price spikes, with an average increase of 76% from onset to peak.
As the situation in the Middle East continues to evolve, it remains to be seen how oil markets will respond to the escalating tensions and potential supply disruptions. The Organization of the Petroleum Exporting Countries and its allies had increased output in the lead-up to the recent events, but the lasting impact on global oil markets remains uncertain. Stay updated on the latest developments in the financial and business world with Yahoo Finance.
