Tensions Rise as Oil Shipments Halt in the Strait of Hormuz
Oil Companies Suspend Shipments Amid Rising Tensions
In light of the escalating conflict involving the US and Israel's military actions against Iran, alongside Tehran's retaliatory measures targeting various Gulf nations, numerous prominent oil firms and trading companies have halted their crude oil and fuel shipments through the Strait of Hormuz, as reported by various news sources. This strait serves as a crucial maritime passage for global oil transport, particularly for crude oil.
One executive from a leading trading firm indicated, "Our vessels will remain docked for several days." Analysts from Equirus Securities have projected that crude oil prices could soar to between USD 95 and USD 110 per barrel if Iran's oil exports and the Strait of Hormuz experience disruptions due to the ongoing tensions.
The Importance of the Strait of Hormuz
The Strait of Hormuz links the Persian Gulf to the Gulf of Oman and the Arabian Sea, measuring just 33 kilometers (21 miles) at its narrowest point. While Iran and Oman govern the territorial waters, it is recognized as an international waterway accessible for commercial shipping. Historically, this strait has been vital for global trade, facilitating the movement of goods like silk and textiles for centuries. In contemporary times, it has become essential for supertankers transporting oil and gas, especially to Asian markets. Past disruptions have led to significant increases in global energy prices.
Iran has consistently threatened to close the strait in response to military actions against it. Additionally, Iranian-aligned Houthi rebels in Yemen have announced intentions to resume attacks on shipping routes and Israel.
Potential Surge in Oil Prices
Even a slight disruption in the Strait of Hormuz could significantly affect global oil supply, according to Equirus Securities. Since the US has begun deploying military resources in the Middle East, crude prices have already increased by approximately 10 percent. A disruption in Iran's oil supply could lead to a price hike of 9-15 percent. Iran's production of 3.3 million barrels per day constitutes about 3 percent of the global oil supply. The report suggests that a partial disruption could introduce a geopolitical premium of USD 20 to USD 40 per barrel, potentially pushing prices beyond USD 95 to USD 110, independent of Iran's production alone.
Ali Vaez, director of the Iran Project at the International Crisis Group, cautioned that the conflict could escalate, resulting in higher energy prices. He noted that Iran has been preparing for potential conflict, and a broader war could erupt in the Middle East. "Iran is situated along the Strait of Hormuz, through which approximately one-fifth of the world's oil supply flows. Even minor disruptions could lead to spikes in energy prices, increase inflation, and unsettle global markets," Vaez stated.