Halt of shipping through the Strait of Hormuz choking off a fifth of global oil supply
A view shows oil pump jacks outside Almetyevsk in the Republic of Tatarstan, Russia June 4, 2023. Photo: Reuters
Oil prices rose on Monday as investor focus returned to threats facing Middle East oil facilities, despite US President Donald Trump’s call for nations to help safeguard the Strait of Hormuz, a vital artery for global energy shipments.
Brent crude futures climbed $1.27, or 1.2%, to $104.41 a barrel by 0400 GMT, after settling up $2.68 on Friday. US West Texas Intermediate crude gained 54 cents, or 0.6%, at $99.25 a barrel, after settling up nearly $3 in the previous session.
Read: Trump says US in contact with Iran but doubts Tehran ready for serious talks
Both contracts have surged more than 40% this month to their highest since 2022, after the US-Israeli attacks on Iran prompted Tehran to halt shipping through the Strait of Hormuz, choking off a fifth of global oil supply in the biggest disruption ever.
“US strikes over the weekend on Kharg Island raised supply concerns, as most of Iran’s oil exports pass through it,” ING commodity strategists said on Monday.
While the strikes appear to have targeted military, rather than energy, infrastructure, they still pose supply risks since Iranian oil is about the only oil moving through the Strait of Hormuz for now, ING added.
Over the weekend, Trump threatened further strikes on Iran’s Kharg Island, which handles about 90% of its exports, after hitting military targets there, to spur a defiant response of more retaliation from Tehran.
Read more: Iran’s Supreme Leader vows to keep Strait of Hormuz closed as Middle East war intensifies
Iranian drones hit a key oil terminal in Fujairah in the United Arab Emirates shortly after the Kharg attacks. Oil loading operations at Fujairah have since resumed, four sources said, but it was unclear if they were back to normal.
Fujairah, outside the Strait of Hormuz, is the outlet for about 1 million barrels per day of the UAE’s flagship Murban crude oil – a volume equal to about 1% of world demand.
“The US is weighing high-risk ground options, including raiding nuclear sites for Iran’s enriched uranium, seizing the Kharg Island oil hub, and occupying southern Iran to protect the Strait of Hormuz,” SEB analyst Erik Meyersson said in a note.
“All of these imply significant escalation and require a tolerance for substantially higher risk.”
On Sunday, Trump said he was demanding that other countries help to protect the key energy route, adding that Washington was in talks with several nations about policing it.
The US is also in contact with Iran, Trump said, but expressed doubt that Tehran was prepared for serious talks to end the conflict.
On Sunday, the International Energy Agency said more than 400 million barrels of oil reserves will begin flowing to the market soon, a record draw aimed at combating price spikes caused by the Middle East war.
Stocks from countries in Asia and Oceania will be released immediately, while those from Europe and the Americas will be available at the end of March, the agency said.
“As the conflict enters its third week, the lack of a clear denouement has left global markets increasingly worried about an uncontrollable escalatory spiral,” SEB’s Meyersson said.
Still, US Energy Secretary Chris Wright said on Sunday he expected an end to the war within “the next few weeks”, with oil supplies rebounding and energy costs falling afterwards.
