A Basij Military Forces speedboat sails in the Persian Gulf near the Bushhir Nuclear Power Plant during the Islamic Revolutionary Guard Corps maritime parade commemorating the Persian Gulf National Day in southern Iran on April 29, 2024.
Noor Photos | Noor Photos | Getty Images
Escalating conflict in the Middle East has thrust the world’s most important oil artery back into the global spotlight.
The Strait of Hormuz is widely considered an important oil transit chokepoint. The waterway, between Iran and Oman, is a narrow but strategically important passage that connects Middle Eastern crude producers to major markets around the world.
In 2022, oil flow through the Strait of Hormuz will average 21 million barrels per day, according to Report to the U.S. Energy Information Administration (EIA). This is equivalent to approximately 21% of global crude oil trade volume.
The inability of oil to cross major chokepoints, even temporarily, would lead to higher global energy prices, higher transportation costs and severe supply delays.
For many energy analysts, a blockade or severe disruption to traffic in the Strait of Hormuz is seen as a worst-case scenario that could send oil prices climbing well above $100 a barrel.
“The worst-case scenario is likely to be an Israeli attack on Iran and Iran taking action to slow down or potentially try to block Hall,” Wood Mackenzie energy analyst Alan Gelder told CNBC’s “Squawk Box Europe” on Monday. Strait of Muzi.
“(This) will have a more dramatic impact because 20% of global crude oil exports pass through countries such as Saudi Arabia, Kuwait and Iraq (and to some extent the United Arab Emirates), which are holders of global spare capacity. Or,” Gerd said.
“As a result, we believe the market is not pricing in the worst-case scenario, but rather pricing in the potential impact on Iran’s energy infrastructure,” he added.
Israel has pledged to fight back against Iran after last week’s ballistic missile attack, fueling speculation that it could soon launch an attack on Tehran’s energy infrastructure.
Iran, a major player in global oil markets, has pledged to respond forcefully if Israel takes any further action.
How high can oil prices go?
energy analysts have Questions arise as to whether oil markets are too complacent about the risk of expanding conflict in the Middle East.
Saul Kavonic, senior research analyst at MST Financial, said supply disruptions along the Strait of Hormuz could cause oil prices to rise significantly.
“If we see an attack on Iranian production, global supply could be reduced by up to about 3%, and even if we just see tighter sanctions, supply could start to decrease by up to 3%. That in itself could lead to oil Prices fell.
“If[transit through the Strait of Hormuz]is affected, we are talking about an oil price impact that is three times greater than the oil price shock in the 1970s after the Iranian revolution and the Arab oil embargo, and now we are talking about $150 plus Get a barrel of oil,” he added.
Oil prices rose more than 3% on Monday, extending gains despite posting their biggest weekly gain since early 2023 last week.
International benchmark Brent crude futures due in December were last down 1.5% at $79.74 a barrel, while U.S. West Texas Intermediate crude futures were down 1.5% at $75.99.
Bjarne Schieldrop, chief commodities analyst at SEB Bank, said that a general rule of thumb in commodity markets is that if supply is severely constrained, prices tend to surge to 5 to 10 times normal levels.
“So if the worst-case scenario happens and the Strait of Hormuz is closed for a month or more, Brent could surge to $350 a barrel, the world economy would struggle, and oil prices would fall back to $200. /barrel below.
“But judging from the current oil prices, the possibility of such a development in the market seems unlikely,” he added.
What about the natural gas market?
Warren Patterson, head of commodity strategy at Dutch bank ING explain Any disruption to shipping along the Strait of Hormuz would have a huge impact on global energy markets.
“Although still extreme, the key concern is that these disruptions will spread to the Strait of Hormuz and affect the flow of oil in the Persian Gulf,” Patterson said in a research note published on October 4.
He added: “Severe disruptions in these flows would be enough to push oil prices to record highs, surpassing the 2008 all-time high of nearly $150 a barrel.”
The Strait of Hormuz seen to the north, connecting the Gulf of Oman and the Persian Gulf, with the Zagros Mountains and Iran’s Qeshm Island in the background, and the Oman, Muscat and United Arab Emirates regions in the foreground, as shown in 1992 From October 22 to November 1, 2016, the Columbia space shuttle carried out the STS-52 space shuttle mission.
Space Frontier | Archive Photos | Getty Images
ING’s Patterson said any supply disruption related to the Strait of Hormuz would not be isolated to the oil market.
He continued: “It could also lead to disruptions in (liquefied natural gas) flows from Qatar, which accounts for more than 20% of global LNG trade.”
“This will have a shock to the global gas market, especially as we enter the northern hemisphere winter and we see stronger demand for gas for heating. While we see an increase in new LNG export capacity, this is still far from Not enough for Qatar’s exports.
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