Global oil prices have spiked in recent days as the conflict in the Middle East has reached fever pitch. They could rise yet further if Israel’s widening war embroils the vital Strait of Hormuz off Iran’s southern coast.
The slim waterway — just 21 miles (34 kilometers) wide at its narrowest point — is “the world’s most important oil transit chokepoint,” according to the US Energy Information Administration.
About one-fifth of the world’s global oil trade passes through the strait every day, notes Simone Tagliapietra, a senior fellow at Brussels-based think tank Bruegel. It also accounts for about a quarter of the world’s daily trade in liquefied natural gas.
As the conflict in the Middle East escalates, so does the risk of disruption to the flow of oil through the strait — or even a complete stoppage.
Last week, Iran launched a barrage of missiles at Israel in retaliation for Israel’s killing of Hassan Nasrallah, the leader of Hezbollah, an Iran-backed militant group based in Lebanon, as well as others. Israel’s Defense Minister Yoav Gallant told CNN Sunday that the country was preparing to strike back at Iran and that “everything is on the table.”
Tagliapietra described the febrile situation as “very serious,” adding that any rise in tensions involving the Strait of Hormuz might have consequences resembling the oil shock of the 1970s, when the price of oil went “through the roof.”
In 1973, oil prices soared as key Arab oil producers stopped exporting the commodity to the United States and other nations in response to their support of Israel in that year’s Arab-Israeli war. The embargo led to fuel shortages in the US and long lines at gas stations.
This year, since Israel began targeting Hezbollah in late September, oil prices have climbed but not dramatically so, as investors worry more about weak demand in beleaguered China and a glut in global oil supply.
The price of a barrel of Brent crude, the global benchmark, has risen a little over 5% to $77 since September 17, the day pagers belonging to Hezbollah members exploded almost simultaneously across Lebanon, in an attack orchestrated by Israel. West Texas Intermediate, the US oil benchmark, has risen 3.6% in that time to trade at nearly $74 a barrel.
But if oil trade through the critical Strait of Hormuz wobbles, prices could soar above $100 a barrel, according to research firm ClearView Energy Partners, sending gasoline prices surging.
Richard Bronze, co-founder and analyst at data firm Energy Aspects, wrote in a note Monday: “We believe the chances of Iran disrupting the Strait of Hormuz remain relatively low for now. But Iranian decision-making has become less predictable.”
“If Israel hits back hard enough this time — for instance, (via) an intense strike on Iranian nuclear sites — we cannot rule out Iran attempting to close the strait,” he added.
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