Oil prices rose sharply when market trading began Sunday as U.S. and Israeli attacks on Iran, along with retaliatory strikes against Israel and U.S. military installations around the Gulf, sent disruptions through the global energy supply chain. Traders were betting that the supply of oil from Iran and elsewhere in the Middle East would slow or even grind to a halt.
Attacks throughout the region, including on two vessels traveling through the Strait of Hormuz—the narrow mouth of the Persian Gulf—could restrict countries’ ability to export oil to the rest of the world. According to energy experts, such disruptions would likely result in higher prices for crude oil and gasoline.
West Texas Intermediate (WTI), the light, sweet crude oil produced in the United States, was selling for about $72 a barrel Sunday night, up around 8% from its trading price of about $67 on Friday.
Roughly 15 million barrels of crude oil per day—about 20% of the world’s oil—are shipped through the Strait of Hormuz, making it the world’s most critical oil chokepoint, according to Rystad Energy. Tankers traveling through the strait, which is bordered in the north by Iran, carry oil and gas from Saudi Arabia, Kuwait, Iraq, Qatar, Bahrain, the UAE, and Iran.
Iran had temporarily shut down parts of the strait in mid-February for what it described as a military drill. Further disruptions to this shipping channel could lead to lower supply and higher prices for oil.
Kelly O’Grady, CBS News MoneyWatch correspondent and “CBS Saturday Morning” co-host, explained, “It’s a really supply-and-demand, simple economics equation. If you were to decrease the global supply by cutting off the Strait of Hormuz and preventing that oil that flows through, you would see prices spike.”
Amid this backdrop, eight countries that are part of the OPEC+ oil cartel announced Sunday that they would boost production of crude oil. The Organization of the Petroleum Exporting Countries (OPEC), in a meeting planned before the conflict began, said it would increase production by 206,000 barrels per day in April, exceeding analysts’ expectations.
The countries boosting output include Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman.
Jorge León, Rystad Energy’s senior vice president and head of geopolitical analysis, noted, “Roughly one-fifth of global oil supply passes through the Strait of Hormuz, a vital artery for world trade, meaning markets are more concerned with whether barrels can move than with spare capacity on paper. If flows through the Gulf are constrained, additional production will provide limited immediate relief, making access to export routes far more important than headline output targets.”
Iran exports roughly 1.6 million barrels of oil a day, mostly to China. If Iran’s exports are disrupted, China may need to look elsewhere for supply—another factor that could increase energy prices.
O’Grady also pointed out that any action to block the Strait of Hormuz would be self-destructive for Iran. “Remember, Iran’s revenue mainly comes from the oil that it is willing to sell to countries like China that will buy that sanctioned oil. And so if they cut that off for other countries and other buyers, they’re also doing that to themselves,” she said.
“Now, of course, this is an existential moment for Iran. They might choose to go forward with that. But everyone that I’m talking to is saying that is an unlikely, extreme scenario. What you will see is shipping companies saying, ‘I just don’t want to go through there,’ or insurers hiking up the price to insure that oil. And all of those things do flow down to the price of oil.”
https://www.cbsnews.com/news/oil-prices-iran-attacks-strait-of-hormuz/