The threat of Iran closing the Strait of Hormuz has sent jitters through global oil markets, with prices experiencing significant fluctuations. The Iranian parliament’s recent vote to potentially shut down the crucial shipping channel, a direct retaliation against a US attack, has raised serious concerns about a potential oil supply shock. This move, which could disrupt the flow of a fifth of the world’s oil, could push up energy prices, fueling inflation and hampering economic growth, a scenario that the IMF chief, Kristalina Georgieva, has warned could severely damage global growth prospects.
Oil prices initially surged by over 5% on Sunday, hitting a five-month high of $81.40, reflecting the market’s immediate apprehension. However, prices subsequently retreated, with Brent crude falling back to just over $76 a barrel on Monday. Despite this slight pullback, the underlying risk remains significant, with Goldman Sachs estimating that oil could reach $110 a barrel if Hormuz flows are halved for a month and then remain down by 10% for nearly a year.
International diplomatic efforts are underway to de-escalate the situation. US Secretary of State Marco Rubio has labeled a closure of the strait as “economic suicide” for Iran and has publicly appealed to China to exert its influence over Tehran, underscoring Beijing’s deep dependence on the waterway for its energy needs. This highlights the global implications of any disruption in the region.
Analysts are advising caution, with RBC Capital Markets warning against a “kneejerk ‘the worst is behind us’ hot take.” They suggest a “clear and present risk of energy attacks” from Iranian-backed militias and note that the full extent of Iran’s response is still unfolding, keeping global stocks subdued. The reported U-turn of two supertankers in the strait over the weekend further underscores the immediate impact of the heightened tensions on maritime operations.