How does this affect the oil market?
We will get a real answer late Sunday evening when the oil market opens for the first time since Iran confirmed its first bombings. However, there are already signs that there could be a strong reaction this time. The Saudi stock market started in the red on Sunday and the British bank Barclays, for example, raised its forecast for North Sea oil to $80 a barrel on Friday, only to promptly raise it again to $100 the following day.
Such a price level has not been seen since the energy crisis year of 2022 and could also have an impact on the global economy. In addition to oil prices, gold, a classic safe haven during geopolitical unrest, will also rise when trading reopens.
Why is it different this time?
In recent years, the market has become good at absorbing conflict in the Middle East, as long as all parties play fairly within the normal rules of the game.
This time it’s about an existential threat to the Iranian regime, which is under so much pressure that more extreme reactions suddenly seem possible. These include attacks on other energy producers in the region or on the important Strait of Hormuz in the Persian Gulf. Traffic data suggests that freighters are beginning to gather on both sides of the strait and several major shipping companies have already docked their ships in the area.
Why is the Strait of Hormuz so important?
About a third of the oil transported by sea passes through here before it can be shipped on to customers, particularly in Asia and Europe. According to estimates by the analysis firm Kpler, just one day of traffic standstill could cause the price of oil to rise towards $150 per barrel. That would be more than double the average price so far this year.
But it’s not just about oil. Around a fifth of the liquefied natural gas traded worldwide flows through here. Free passage through the strait is crucial, among other things, for exports from Qatar, an important and, not least, growing gas supplier to Europe.
In short, a closed Hormuz is a nightmare for energy markets.
Can Iran close the strait?
They’ve threatened, but never seriously tried. A total blockade would be devastating for the country’s own economy and runs the risk of angering allies such as major customer China. But the current threat level could change that equation. The economy is worth sacrificing if the alternative is destruction.
Even without a complete closure of the strait, the consequences are noticeable. At the weekend, Iran’s warning that the strait was effectively closed was enough to reduce traffic. Other options include using small boats, signal jammers or drones, for example, to harass and disrupt ships traveling through the strait. Drone attacks in particular could cause longer-lasting problems because they can be launched from small, mobile devices with minimal contact with Tehran.
What can the outside world do in such cases?
There are options, although they are limited. Both Saudi Arabia and the United Arab Emirates have oil pipelines that they can use. But these can also be attacked, and Iraq and Qatar, for example, do not have the same infrastructure at all.
If traffic is only disrupted and not completely stopped, an alternative is to allow traffic to proceed in convoys accompanied by military ships. This is what the US did, for example, to keep the strait open during the Iran-Iraq war in the 1980s.
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