Background and Relevance of the Situation
On Monday’s opening in Asian markets, futures for Brent crude oil rose by 2.5%, while West Texas Intermediate (WTI) increased by 2.7%. This surge reflects market tension due to the threat posed by Iran disrupting maritime transport through the Strait of Hormuz following a US attack on Iranian nuclear and military sites.
Key Developments
- On Saturday, the US conducted attacks on Iranian nuclear and military installations, escalating tensions between Israel and Iran.
- The conflict, initiated by an Israeli attack on Iran on June 13th, has caused oil price fluctuations due to growing fears of supply and transportation disruptions in the region.
- Iran, being the fourth-largest OPEC oil producer and situated in the Strait of Hormuz through which a significant portion of global crude passes, has been central to these concerns.
- Since the Israeli offensive began on June 13th, oil prices have risen by 10.21% for WTI and 11.03% for Brent, with the Mexican export blend gaining 11.42% during this period.
- Iranian politicians have proposed closing the Strait of Hormuz in response to recent US bombardments, which carries 20% of the world’s oil traffic.
Potential Impact on Oil Prices
Closing the Strait of Hormuz would jeopardize 20% of global crude transit, including daily transportation of 20 million barrels. This could potentially push the price per barrel up to $130, according to experts.
- Expert Opinions:
- Ben May, Global Macroeconomic Research Director at Oxford Economics, stated that continuous attacks by Israel and Iran increase oil price uncertainty due to supply and transportation disruption risks in the region.
- JP Morgan projects a rise to $130 per barrel if the conflict intensifies, considering worst-case scenarios such as military conflict and closure of the Strait of Ormuz.
- Citigroup anticipates a temporary closure of the passage would elevate Brent crude prices to $90 per barrel from current $75, with prolonged interruptions potentially driving it to $100.
- Goldman Sachs adds a $10 per barrel risk premium due to Middle East tensions, predicting Brent will rise from $90 and warning that sustained disruptions could affect OPEC+’s response capability.
OPEC+ Production Adjustments
In light of the escalating tensions, OPEC+, comprising major global oil producers, might advance its planned production increase by approximately one year, according to Rosneft CEO Igor Sechin, Russia’s largest crude producer.
Sechin also mentioned that OPEC+’s decision to expedite production increase appears foresighted and justified given the Israel-Iran confrontation.
OPEC and its allies, led by Russia, surprised markets in April by agreeing to a larger-than-expected production increase for May, despite weak oil prices and slowing demand.
Since then, OPEC+ has decided to increase production beyond initial plans.
“The announced production increase since May of this year triples the alliance’s original plan. Moreover, the entire OPEC+ production increase could be advanced by a year from what was initially planned,” Sechin stated without further details.
