Traffic through the Strait of Hormuz, a vital maritime thoroughfare, has remained closed since fighting began
President Donald Trump said late on Friday that US forces had struck military targets on the vital Kharg Island and threatened to extend attacks to energy infrastructure if Tehran interferes with transit through the Strait of Hormuz, the narrow waterway connecting the Persian Gulf with the world. Traffic through Hormuz has all but halted since the war began and Iran’s supreme leader said last week the strait should remain shut if the conflict continues.
With every passing day, the impact of the conflict on the oil market is becoming more acute. While countries with the ability to do so are racing to find workarounds for Hormuz, the conflict has already created a massive supply disruption that is sending premiums for real-world barrels and fuel prices soaring.
Iran said strikes on oil infrastructure at Kharg Island would lead to retaliation against US-linked energy facilities in the region.
In the United Arab Emirates, loading operations at the key hub of Fujairah were interrupted after a drone strike in the early hours of Saturday, choking off shipments from the country’s only export route while the Strait of Hormuz is blocked. Activities there resumed yesterday.
“I don’t think markets will take too kindly to the latest developments,” said Tim Waterer, chief market analyst at KCM Trade. “I expect another nervy start to the week with Kharg Island’s fate unclear, given its importance to global energy supply.”
Crude benchmark Brent rallied 11pc last week, hitting a high of $119.50 (€104.20) a barrel back toward levels seen after Russia’s invasion of Ukraine before closing just above $103. It was the most volatile for the European marker since futures began trading in 1988.
“We are still hurtling down the highway at breakneck speed, in the left lane, with no sign of when we’re going to be able to veer off onto the exit ramp,” said Stephen Schork, founder of Radnor, Pennsylvania-based Schork Group Inc., adding he would not be surprised to see crude open above $117 a barrel, and “we could even possibly open up above that number.”
The oil market has been pitched into turmoil by US and Israeli attacks against Iran at the end of last month, a conflict that is hitting energy production and exports. The International Energy Agency has warned the disruption to oil supply is unprecedented, and members agreed last week to release 400 million barrels from emergency reserves to try to quell soaring prices.
Traffic through Hormuz, a vital maritime thoroughfare, has remained at a near-standstill since fighting began, with just a handful of vessels, mostly Chinese and Iranian ships, passing through.
Most recently these included two India-bound vessels carrying liquefied petroleum gas and a Greek-run tanker.
President Trump intensified calls at the weekend for the choke point to reopen, saying warships will “hopefully” be sent to the area to help commercial vessels pass through.
He gave little detail, beyond saying that he hoped China, France, Japan, South Korea and the UK would send ships.
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