Oil Soars as Strait of Hormuz Tensions Mount

 Oil Soars as Strait of Hormuz Tensions Mount

Oil Prices Hit Up as Strait of Hormuz Tensions Poses Threat To Supply International Oil Market

Oil prices have reached their highest in months following threat by Iran to block Strait of Hormuz, a major maritime choke point where close to a fifth of all global oil passages. The action is in reaction to the U.S. airstrikes of Iranian nuclear plants further heating up an already heated up scenario in the Middle East.

Brent Crude and WTI Bounce Up

Brent crude futures surged more than 5.7 percent to stand at 78.67 per barrel whereas West Texas Intermediate (WTI) crude increased over 75 which was the largest one-week rally since early April. The analysts feed that the market could jump well over $90 or even to more than a hundred dollars in the event that things continues to go bad and the shipping routes are still out of danger.

The strait of Hormuz is the lifeline of global oils market. And the whiff of any disruption makes the ripples throughout the domain of the energy economy,” said Anjali Mehta, senior commodities researcher at PetroTrack.

🚢 What is Strait of Hormuz and Why is it Important

Strait of Hormuz is a seaside passage located between the Arabian Sea and Persian Gulf. This strait is used as a transit to connect oil to the rest of the world with an average range of 20 percent of the world oil consumption (17 million barrels per day) being transited through this strait with major oil producers including Saudi Arabia, Iran, Iraq and the UAE being victims.

Sunday, the parliament in Iran issued an emergency resolution to move towards the closure of the strait calling it a defensive act following the aggression by the U.S.and Israel against it.

Reponses by U.S and Global Warnings

The U.S Secretary of State Marco Rubio has denounced the Iranian maneuver, dubbing it as economic suicide and warned of dire consequences in case Iran closed the strait. The U.S. The presence of Fifth Fleet in Bahrain has stepped up in the Gulf and international naval exercises are reportedly being weighed.

Emergency session of the united nations security council has been held. UN Secretary-General Ant nio Guterres pleaded:

Such a move would mean a major shock to world economy, with the closing of the Strait. Diplomacy should win.”

Market Reactions and Economy

World financial markets responded very harshly:

Stocks on the energy sector rose with ExxonMobil, BP and Saudi Aramco leading.

The logistics and aviation stocks were cut down due to fear of an increase in fuel prices.

Gold and U.S. Treasury bonds were also on the rise because people were taking safety.

The currencies of the oil-importing countries such as India, Japan and South Korea declined and those of oil exporters such as Russia and Norway rose.

The rupee of India fell to a new low in five months, and the Reserve Bank of India (RBI) awaits to act in order to stabilize the currency markets and even bond market.

So What Next?

In the case of an all-out blockade undertaken by Iran, analysts predict:

Brent oil with 110 + per barrel

There is an increase in global inflation Rates

Insurance premiums in gulf to soar in shipping The insurance premiums in shipping will soar in the Gulf.

The possible military escorts to oil tankers (by the U.S. or NATO)

This is still a moving situation and at the slightest miscalculation it is possible that the dynamics of energy and security go into a free fall.

📌 Conclusion

The recent confrontation of Strait of Hormuz once again evidences the extent to which geopolitics and energy markets are converged. With anticipation, all eyes now are focused on Tehran, Washington and major gulf nations to keep fingers crossed that de-escalation may be achieved before setting the alarm to signal an oil shock of world scale