Oil price expected to surge after Iran strikes and strait of Hormuz closure
The price of oil is expected to soar on Monday as the US-Israel war on Iran and the effective closure of the crucial strait of Hormuz rattles investors despite major producers’ pledges to increase its output,US crude is on track to rise by 11% when trading resumes, according to data from the broker IG,The jump comes as Opec+, the cartel of oil producers, agreed on Sunday to step up its output by more than expected as it assessed the impact of the conflict,Iran’s Revolutionary Guards reportedly told ships on Saturday that passage through the strait of Hormuz was prohibited, in effect shutting the key choke point and prompting the halt of some oil shipments,About $500bn (£372bn) of energy trade and 20% of global oil supplies pass through the strait each year.
Vessels also carry chemicals and fertilisers, meaning disruption could affect agriculture and global food prices.A tanker in the strait was attacked on Sunday, and at least 150 others carrying crude, liquefied natural gas and oil products dropped anchor in open waters as traffic in the region slowed to a near standstill, Reuters reported.Tehran has long warned that it could use its location to shut the strait in retaliation against military aggression.Tamsin Hunt, a senior analyst at S-RM, a global intelligence and cybersecurity consultancy, said closing the strait in full would be “devastating for Iran’s own economy”.IG’s weekend markets showed that US crude oil could rise to more than $74 (£55) a barrel when trading resumes in New York late on Sunday, up from $67 a barrel on Friday night.
That would be its highest level since June 2025, when the US launched strikes on Iran’s nuclear facilities.Analysts at Barclays said the oil price could reach $80 a barrel in the event of a “material supply disruption”.Royal Bank of Canada analysts said: “It is our understanding that regional leaders warned Washington about the contagion risks of another confrontation with Iran and indicated that $100-plus oil was a clear and present danger.”A jump in wholesale oil prices is expected to feed through to prices at the pump.The AA said the average UK price of petrol was 132.
9p a litre and diesel 142,4p, but disruption in the Middle East could combine with the Treasury’s upcoming reversal of a 5p-a-litre fuel duty cut to push up prices,The AA spokesperson Luke Bosdet said: “Pump prices have been rising over the past week and the conflict escalation in the Middle East threatens even higher fuel costs for UK drivers,”London’s FTSE 100, which hit a record high on Friday and had been close to breaking 11,000 for the first time, is expected to fall by about 0,5% on Monday morning.
Global investors are expected to seek out safe-haven assets on Monday.Gold, which has risen for the past four weeks, is up 2.25% to almost $5,400 an ounce on IG’s weekend markets and silver is trading 3.2% higher.The closure of the strait of Hormuz would disrupt shipments from Saudi Arabia, the United Arab Emirates, Iraq and Kuwait, as well as from Iran, leading to shortages and higher energy prices.
Eight Opec+ countries including Saudi Arabia and Russia agreed at Sunday’s meeting to raise output by 206,000 barrels a day in April, compared with original expectations of an increase of 137,000.The move could calm oil markets because adding to global inventories eases pressure on prices, but the countries also noted: “This measure will provide an opportunity … to accelerate their compensation.”Opec+ has a history of raising output to cushion disruptions, but analysts said the group had little spare capacity to add, except for its leader Saudi Arabia and the UAE, which will struggle to export oil until navigation in the Gulf returns to normal.The ports company DP World said it had suspended operations at the Jebel Ali port in Dubai, and the Mediterranean Shipping Company stopped booking for worldwide cargo into the Middle East until further notice.Ports in Bahrain and Oman were also shut.
The conflict has also driven up the cost of insuring ships in the region, according to Dylan Mortimer, the marine hull UK war leader at the risk management consultancy Marsh.Oman said on Sunday that an oil tanker in the strait of Hormuz came under attack, injuring four mariners onboard.The attack targeted a vessel registered in the Pacific island nation of Palau.Mortimer said attacks on shipping could have “major repercussions across war insurance rates”.The International Maritime Organisation, the United Nations agency responsible for the safety and security of shipping, said that vessels should avoid transiting the affected region until conditions improve.
Most stock markets in the Gulf region fell on Sunday,Saudi Arabia’s market lost 2,5%, pulled down by financial stocks, industrial companies and utilities, but Saudi Aramco’s shares rose by 2,5% following the forecast of a jump in the price of crude,Kuwait’s stock exchange suspended trade until further notice, citing the “exceptional circumstances” the country was facing.
On Sunday, the UAE’s Capital Market Authority said trading on the Abu Dhabi and Dubai stock markets will be suspended on Monday and Tuesday as a result of the hostilities.
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