VINACHEM

Oil markets are entering a new phase of uncertainty after the U.S. joined the war between Iran and Israel, with experts warning of triple-digit prices.

Investors are closely watching for Tehran’s reaction following the U.S.′ strikes on its nuclear facilities, with Iran’s foreign minister warning his country reserved “all options” to defend its sovereignty.

Oil futures were up over 2% as of early Asia hours. U.S. WTI crude rose more than 2% to $75.22 per barrel, while global benchmark Brent was up nearly 2% at $78.53 per barrel.

“There is real risk of the market experiencing unprecedented supply disruptions over coming weeks, of a much more severe nature than the oil price shock in 2022 in wake of the Ukraine war,” said MST Marquee’s senior energy analyst Saul Kavonic.

While the market reaction post U.S. strikes has been less aggressive, relative to just over a week ago when Israel launched airstrikes against Iran, industry watchers believe that the latest developments usher in a new era of volatility for the oil markets, especially as they await for potential Iranian countermeasures.

Threats of blocking Strait of Hormuz, after Iran’s parliament approved closing it as per state media, have added to market jitters.

The strait, which connects the Persian Gulf to the Arabian Sea, is a critical artery for global oil trade with about 20 million barrels of oil and oil products passing through it per day. That makes up almost one-fifth of global oil shipments.

If Iran does close the Strait of Hormuz, Western forces will likely “directly enter the fray” and try to reopen it, Kavonic told CNBC, adding that oil prices could approach $100 per barrel and retest the highs seen in 2022, if the closure goes beyond more than a few weeks.

“Even a degree of harassment of passage through the Strait, short of a full closure, could still see a serious heightening of oil prices,” said the senior energy analyst.

Kavonic’s view is echoed by other industry experts.

The U.S. and allied military would eventually reopen the Strait, but if Iran employed all its military means, the conflict could “last longer than the last two Gulf Wars,” said Bob McNally, president of Rapidan Energy Group. And should Iran decide to attack Gulf energy production or flows, it has the capability to disrupt oil and LNG shipping, resulting in sharp spike in prices.

“A prolonged closure or destruction of key Gulf energy infrastructure could propel crude prices to above $100,” he said.  – Source: CNBC –