Oil ‘will surge above $100 a barrel’ if Iran blocks Strait of Hormuz
Oil prices will surge above $100 a barrel if Iran blocks the world’s most important crude shipping route in retaliation for America bombing its nuclear sites, analysts believe.
Iran’s parliament voted on Sunday to close the Strait of Hormuz, a crucial chokepoint through which tankers carry about a fifth of global oil supplies.
All eyes are on whether Iran’s Supreme National Security Council decides to approve the often-threatened but never-implemented step, which analysts described as a “worst-case scenario”.
Kallum Pickering, chief economist at Peel Hunt, said an attempt by Iran to attack or mine the strait would cause “a significant global supply and price shock, depressing global GDP and pushing up inflation”.
Brent crude, the global benchmark oil price, has already risen by about $10 a barrel to more than $77 since Israel began its strikes on Iran on June 13, amid fears that Iran could block the strait.
Weekend betting markets forecast that Brent would jump by another $4 to $5 a barrel when markets resumed trading late on Sunday night, taking prices above $80 a barrel for the first time since January.
Sir Niall Ferguson, the historian, has warned that markets have been “complacent” about the risk of Iran blocking the strait, as Tehran could strike out in its “death throes”. That would send oil “way above” $100 a barrel and cause a huge economic shock on a scale not seen since the 1970s, he told The Times CEO Summit.
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David Fyfe, chief economist at Argus Media, has said that closure of the strait could send prices to between $100 and $150 a barrel.
The Arab oil embargo of 1973-74 led to prices roughly quadrupling, from about $3 to almost $12 a barrel, while the Iranian revolution of 1979 and the subsequent Iran-Iraq war, which reduced output from both countries, resulted in oil prices more than doubling from $14 in 1978 to $35 in 1981.
More recently oil prices spiked as high as $139 a barrel at one point in the aftermath of Russia’s invasion of Ukraine in 2022.
Many analysts still do not expect Tehran to follow through on its threats to block the strait, in part because it would be likely to harm Iranian allies and customers more than it would hurt America.
Pickering said it was “worth noting that China is heavily dependent on the Strait of Hormuz for its trade”.
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“If Iran tries to block that stretch of water, it risks an all-out war with the most powerful country in the world [the US] and badly antagonising the second most powerful [China],” he said. “Headlines predicting oil prices above $100 a barrel should be viewed as forecasts for worst-case scenarios at this stage.”
As well as a crucial shipping route for oil tankers, the strait between Iran and Oman, which is only 21 miles wide at its narrowest point, is also the route taken by about a fifth of global exports of liquefied natural gas (LNG).
Ole Hansen, head of commodity strategy at Saxo Bank, said he had “long held the view that strategic considerations, particularly toward Iran-friendly Qatar and its vital LNG exports, and Iran’s dependence on China — its largest oil customer — would act as a restraining force”, as long as Iran’s own oil export facilities were not targeted.
An Islamic Revolutionary Guard Corps speed boat in the Gulf
MORTEZA NIKOUBAZL/NURPHOTO VIA GETTY IMAGES
However, he added that “even without a full-scale disruption, the mere threat of interference in the strait could delay shipments and trigger a sharper-than-expected short-term spike in prices”.
He said that the US and China could release strategic oil reserves to ease prices, and Saudi Arabia and the United Arab Emirates could redirect some of their exports via pipelines to facilities outside the strait.
James Bambino, senior oil analyst at S&P Global Commodity Insights, said the world had sufficient oil supply to meet demand even if Iranian exports were affected — “so long as the Strait of Hormuz remains open — and we expect that it will”.