Oil prices could briefly rise above $100-120 per barrel if Iran completely blocks the Strait of Hormuz, but they are unlikely to remain at that level in the long term, experts say.
A possible blockage of the Strait of Hormuz would be the most significant geopolitical shock to the oil and gas market in recent decades. Nearly 20% of global oil consumption and over 25% of global liquefied natural gas (LNG) exports, mainly from Qatar, pass through this narrow sea passage per day.
Even a short-term blockade would cause a sharp jump in prices. The price of oil in the event of a complete and prolonged blockade may temporarily exceed 120 USD per barrel of Brent, especially if all supplies are stopped (not only crude oil, but also condensate and petroleum products). This will be caused not so much by a real deficit as by panic in the market, an influx of speculative capital and growth in risk premiums. A moderate scenario with partial destabilization (for example, blocking individual ships) could raise the price of oil to the range of 90-100 USD per barrel.
The analytical center Mind Money also allowed a short-term increase in oil prices in the event of an escalation of the conflict between Iran and Israel. The escalation of the confrontation between these two countries poses a serious threat to the stability of the world oil market. “In response to these geopolitical events, oil prices have already risen by 28% from their annual lows, and in my opinion, further negative developments in the situation could lead to an even sharper short-term price spike - up to 100 USD and above“, the center emphasizes.
The blocking of the Strait of Hormuz by Iran will lead to an increase in the cost of global tanker traffic due to the need to redirect them along longer and more complex routes. expensive routes, as well as to increased economic instability and rising inflation. “However, the price of oil in the long term will still lag behind inflation. Geopolitical local events may increase prices in the short term, but it would be premature to talk about a long-term global perspective at this stage“, experts noted.
It is practically impossible to quickly replace the lost volumes of raw material supplies in the event of a closure of the Strait of Hormuz. “Saudi Arabia and the UAE can theoretically transport part of the oil, bypassing the strait, through the EAST-WEST pipeline (capacity up to 5 million barrels per day), but this is not enough. The US has very limited potential for production growth, logistics and infrastructure will not allow a rapid increase in production. Liquefied natural gas (LNG) exporters such as the US and Australia are operating close to their maximum capacity. Stockpiles in warehouses in Europe and China will partially mitigate the consequences, but only for a limited time“, the expert explained.
The market is entering a zone of extremely high volatility. “There is also a significant risk of a change in the political regime in Iran with a short-term destabilization of production and the subsequent return of Iranian oil to world markets (due to the lifting of sanctions). In such a scenario, oil prices may first jump, and then fall to quite low levels - 40-50 USD per barrel“, analysts predict.