Oil prices shoot up again following conflict escalation
The oil price has risen further with the escalation of hostilities between the US and Iran, with Brent crude standing at around US$86/bbl on Tuesday 14 July
Recent days have seen renewed US attacks on Iranian infrastructure, and Iranian attacks on US bases in the region as well as ships and oil tankers, along with President Trump’s announcement of a 20% fee on cargo transiting the Strait and a renewed blockade of Iranian ports.
Brent crude had fallen to around US$70/bbl earlier this month following the announcement of the ceasefire, and the IEA had predicted in its July monthly oil market report that the market could return to surplus by the end of the year. This prediction looks to have been upended by recent events, with the risk to disruption to shipping once again raising the prospect of supply shortages.
“The escalation disrupts global energy supplies, with a near halt in ship navigation in the Strait of Hormuz, and heightens the risk of further escalation, including targeting oil production and refining infrastructure in the region, which could make the damage structural rather than temporary,” noted Samer Hasn, senior market analyst at XS.com. “…we saw widespread targeting of the Iranian mainland and islands and targeting of American bases at several points in the region, in addition to targeting ships and oil tankers, and these events are still recurring until the time of writing. To make matters worse, we saw an unexpected and sudden return of escalation between Saudi Arabia and the Houthis in Yemen.
“With this stormy series of events, we must calmly rearrange our hypotheses. I believe we are now in a round of negotiating under fire, following the failure at the table after the signing of the recent memorandum of understanding. The major obstacle lay in reaching an understanding regarding the implementation of the fifth article of the signed memorandum of understanding, which concerns the management of the Strait of Hormuz.”
“The latest developments have shifted market focus from oversupply concerns to the risk of prolonged disruptions to Gulf energy exports, with the duration of US enforcement measures and the security of Hormuz now likely to determine whether oil prices remain elevated,” commented MUFG Research.
Crispus Nyaga, research analyst at Empire FX, said, “Looking ahead, prices could extend their climb, potentially nearing previous highs, should shipping through the Strait of Hormuz come under severe restrictions and regional security deteriorate further. However, efforts by Gulf oil exporters to circumvent the waterway could help ease the upside pressure to some extent. A return to diplomatic talks and a formal end to military operations could support a recovery in maritime traffic, allowing energy exports to normalise and prices to ease gradually, although this scenario could remain unlikely over the short term.”
Tolls in the Strait now look impossible to avoid, commented deVere Group’s CEO Nigel Green. “Investors keep treating Hormuz disruption as a spike that fades once the fighting stops. This time, for me, looks different,” he said.
“Once a toll exists in practice, taking it away again becomes its own political fight. I would price this as a permanent cost of moving global energy, not a headline that blows over.”
