Oil Prices Climb 1% Amid Uncertainty Over Potential Iran Retaliation and Supply Risks
Following a direct U.S. attack on Iranian nuclear sites, investors analysed whether Iran’s response against the U.S. could affect the world’s petroleum supply, which caused oil prices to rise Monday.
The price of a barrel of U.S. crude oil increased by $1.07, or 1.5%, to $74.91. Brent is a global benchmark.
traded at $78.08, up $1.07, or 1.4%.
Both benchmarks had dropped significantly from their overnight highs. Before relaxing, Brent had gained more than 5% to break $81. Before retreating, WTI also hit its highest points since January.
Markets were taken aback on Saturday when President Donald Trump declared that Washington had personally intervened in the Iran-Israel dispute by attacking three Iranian nuclear facilities in Fordo, Natanz, and Isfahan.
Now, investors want to know how Iran will react to the historic American strikes. The Islamic Republic of Iran reserves “all options” to protect its sovereignty, according to the country’s foreign minister on Sunday. According to S&P Global Platts, if Iran does not react, the initial increase in oil prices may subside.
Hormuz Strait
Energy specialists say an Iranian attempt to seal the Strait of Hormuz would be the worst-case scenario for the oil market. The Energy Information Administration estimates that in 2024, about 20 million barrels of crude oil per day, or 20% of the world’s total consumption, passed across the strait.
Iran’s parliament supported the strait’s closure, according to Iranian official television, which quoted a senior lawmaker. According to the article, Iran’s national security council will ultimately decide whether to seal the strait.
Iran has been cautioned by U.S. Secretary of State Marco Rubio not to try to seal the strait. Rubio claimed that since the Islamic Republic’s exports go through the waterway, it would be “economic suicide.”
In an interview with Fox News on Sunday, Rubio stated, “We have options to deal with that.” The effects on other nations’ economies would be far more severe than on ours. I believe that would be a significant escalation that would warrant a response from others as well as from us.
According to independent analyst sources cited in OPEC’s June monthly oil market report, Iran produced 3.3 million barrels per day in May. According to Kpler data, it shipped 1.84 million barrels per day last month, with China purchasing the great majority of those exports.
Rubio urged China to stop Tehran from blocking the strait by using its power. According to Kpler, the Persian Gulf accounts for around half of China’s imports of waterborne crude oil.
“They rely heavily on the Straits of Hormuz for their oil, so I urge the Chinese government in Beijing to call them about that,” Rubio stated.
Given the long-lasting effects of the 2011 NATO-led overthrow of Muammar Gaddafi on Libya’s supplies, investors are also keeping an eye on the likelihood that U.S.-Israeli tensions would further destabilise the Iranian regime.
Regional conflicts
In neighbouring Iraq, the second-largest producer of OPEC, tensions have also increased. In the past, pro-Tehran militias have warned Washington if it targets Iran’s supreme leader, Ayatollah Ali Khamenei.
According to Google-translated remarks broadcast by Iranian news agency Fars, Iran’s Revolutionary Guard issued a warning on Sunday that “the US bases in the region are not their strength but rather their greatest vulnerability,” without naming specific locations.
Meanwhile, nascent but re-established diplomatic relations between Saudi Arabia and Iran, erstwhile adversaries, may lessen the likelihood of supply interruptions for the biggest crude exporter in the world.
According to the Saudi foreign ministry on Sunday, “the Kingdom of Saudi Arabia is following the developments in the Islamic Republic of Iran with deep concern, particularly the targeting of Iranian nuclear facilities by the United States of America.” A key Middle Eastern ally of the United States, Riyadh has kept its engagement in the Iran-Israel offensives to a minimum.
Four years prior to re-establishing diplomatic ties with Iran, in 2019, strikes that were claimed by the Houthis but that Riyadh and the United States blamed on Iran damaged Saudi Arabia’s oil installation sites at Abqaiq and Khurais. Tehran denied any involvement.
When the Israeli-Iranian conflict resumed last week, Fatih Birol, the head of the International Energy Agency, stated that the organisation was keeping an eye on the situation and that “markets are well supplied today but we’re ready to act if needed,” with 1.2 billion barrels of emergency supplies on standby.
Oil prices hit 11-year lows in Asia and Europe Monday, as a glut of crude on world markets and the Read more
DOHA: Oil producing countries meeting in Doha on Sunday appeared close to agreeing on an output freeze to prop up Read more
LONDON: Brent crude reached fresh 2016 highs on Friday and was poised for its biggest monthly gain in seven years Read more
UAE, a member of the Opec will invite Indian companies for upstream oil & gas investments in Abu Dhabi which Read more
