Energy markets are beginning to show a reaction to the U.S.-Israel bombing campaign targeting Iran, which is intensifying its retaliatory actions in the region.
Brent crude prices experienced a 10% surge, reaching approximately $80 a barrel over the counter on Sunday. This increase follows a trend of escalating prices in the days leading up to the initial airstrikes early Saturday, as tensions heightened, with the global benchmark closing at a seven-month high of $73 a barrel on Friday.
Last year, Iran produced 4.7 million barrels per day, representing 4.4% of global oil supplies. A significant portion of its heavily sanctioned shipments are destined for China, facilitated by what is known as a shadow fleet.
However, the more substantial risk lies in the potential for Iran to obstruct the Strait of Hormuz, a critical chokepoint through which a fifth of the world’s oil is transported to export markets. Analysts have projected that any Iranian actions to close the strait could drive prices to $100 per barrel.
While Iran has not yet implemented measures to close the strait, such as deploying underwater mines, vessels are actively avoiding the area.
According to reports, hundreds of tankers carrying oil and liquefied natural gas have either dropped anchor or are remaining stationary in the vicinity of the Strait of Hormuz.
This situation arose after tanker owners, oil majors, and trading houses suspended shipments through the strait on Saturday as a precautionary measure.
“Our ships will stay put for several days,” a senior executive from a major trading desk informed Reuters.
Furthermore, Greece’s shipping ministry has advised vessels to steer clear of the Persian Gulf, the Gulf of Oman, and the Strait of Hormuz. Shipping giant Maersk has also announced the suspension of all vessel crossings through the strait until further notice.
Reports indicate that the Islamic Revolutionary Guards Corps has warned ships against passage through the strait, and at least two vessels have reportedly been struck near the waterway, though the origin of these attacks remains unclear.
Iran’s foreign minister stated on Sunday that the country currently has “no intention of closing the Strait of Hormuz, nor does it have any plans to do anything that would disrupt navigation in it at this stage.”
Meanwhile, OPEC+ has indicated plans to increase output by 206,000 barrels per day in April, building upon its existing monthly increments of 137,000 barrels.
However, most of the cartel’s members possess limited spare capacity to boost oil production, with the majority of this capacity residing in Saudi Arabia.
William Jackson, chief emerging markets economist at Capital Economics, noted in a Saturday memo that a general rule of thumb suggests a 5% annual increase in oil prices typically adds approximately 0.1 percentage points to average inflation in major economies. This implies that if Brent crude were to surge to $100 a barrel, global inflation could rise by 0.6-0.7 percentage points.
“This might slow the pace of monetary easing by major central banks, particularly in emerging markets, where policymakers tend to be more sensitive to swings in commodity prices,” he added.