US-Israel War Against Iran: Why closure of Strait of Hormuz may hit your wallet soon

Strait of Hormuz. (Graphics: Reuters)

New Delhi: Rising conflict in the Middle East has pushed international energy markets into uncertainty. Iran has continued its attacks in response to ongoing strikes by the United States and Israel. Oil and gas prices climbed across global markets.

Natural gas prices jumped nearly 50 percent. The surge followed a decision by QatarEnergy to halt production after what it described as “military attacks” on its facilities. Doha is one of the world’s largest exporters of liquefied natural gas (LNG). Any disruption from it sends immediate warnings through energy markets.

Brent crude, the global oil benchmark, rose 10 percent on Monday and crossed 82 dollars per barrel. The increase came after reports of attacks on at least three vessels near the Strait of Hormuz within two days. The strait is a narrow waterway that connects two major water bodies. It carries a large share of the world’s energy shipments.

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Iran announced restrictions on maritime traffic through the Strait of Hormuz, which is located along its southern coast. Around 20 percent of the world’s oil and gas supply passes through this route. Even a pause in movement creates anxiety in trading floors from London to Singapore.

Stock markets showed the tension. London’s FTSE 100 opened nearly one percent lower. Airline stocks fell after airspace closures across parts of the Middle East disrupted routes and raised operational costs.

Markets slide

Major European indices recorded losses. France’s CAC 40 dropped 1.6 percent. Germany’s DAX declined 1.7 percent. Investors moved funds into safe assets. Gold prices rose 2.3 percent to 5,395.99 dollars per ounce.

Analysts warned that a prolonged war could push energy prices even higher. Shipping activity near the entrance of the Strait of Hormuz slowed dramatically. The UK Maritime Trade Operations centre reported that two vessels were targeted and that an “unknown projectile” exploded close to a third ship.

After the initial spike, Brent crude eased to $79 per barrel. US-traded oil settled at $72.20 with a gain of 7.6 percent.

Saul Kavonic, head of energy research at MST Marquee, said the market was calm despite the recent escalation. He said that neither side had targeted oil transport routes or major production facilities so far. According to him, traders are keeping an watching for signs that shipping through the Strait of Hormuz would return to normal. He added that oil prices could ease once regular traffic resumes.

What experts are saying

Some analysts believe oil could climb above $100 per barrel if fighting continues for an extended period. Higher oil prices would feed into inflation and interest rate expectations across major economies.

Robin Mills, chief executive of Dubai-based consultancy Qamar Energy and a former Shell executive, said the jump in prices would have an immediate effect since traders were closely tracking developments. He said present oil prices were not extremely high and was below levels seen two years ago. The world, according to him, is not so far facing a full oil crisis.

On Sunday, the OPEC Plus group agreed to raise production by 206,000 barrels per day in an effort to manage possible price pressure. Some observers questioned how much relief this increase would provide.

Edmund King, president of the Automobile Association in the United Kingdom, warned that the war could raise petrol prices across the world. He said turmoil and bombardment in the Middle East could disrupt international oil distribution and added price increases were likely. The scale and duration of rises at fuel pumps would depend on how long the conflict lasts.

Subitha Subramaniam, chief economist and head of investment strategy at Sarasin & Partners, said that sustained high oil prices would affect food, agriculture and industrial goods. She said inflation would rise further under such conditions.

Inflation in the United Kingdom has slowed in recent months. The Bank of England responded with interest rate cuts. Subramaniam indicated that the bank might hold rates steady at 3.75 percent despite earlier indications of further reductions.

On Sunday, Iran’s Islamic Revolutionary Guard Corps (IRGC) stated that three British and American tankers were hit by missiles and were burning. The United Kingdom and the United States offered no comment.

The UK Maritime Trade Operations centre reported several security incidents in the Arabian Gulf and the Gulf of Oman. It advised vessels to pass with caution.

Ship tracking platform Kpler showed that at least 150 tankers dropped anchor in open waters beyond the Strait of Hormuz. Some Iranian and Chinese vessels continued transit on Monday.

Homayoun Falakshahi of Kpler said Iranian threats had effectively closed the strait. He said risks were high and insurance costs had risen to a great extent. He said many ships chose not to enter as a precaution. The United States, he said, might attempt to secure shipping lanes. He said successful protection could limit price spikes and the prices could rise “considerably” if the strait remained closed for a long period.

Danish container shipping company Maersk announced that it would temporarily suspend services through the Bab al-Mandab Strait and the Suez Canal. The company said vessels would reroute around the Cape of Good Hope.

Where is the Strait of Hormuz and why does it matter?

The Strait of Hormuz lies between the Persian Gulf and the Gulf of Oman. It runs along the maritime borders of Iran and Oman. At its narrowest point, it measures only 33 kilometres.

It carries nearly one-fifth of the world’s total oil supply. Crude exports from Saudi Arabia, the United Arab Emirates, Kuwait and Iran pass through this route. Qatar, the world’s largest exporter of LNG, also depends on this corridor.

The strategic importance of the waterway became evident during the Iran-Iraq war from 1980 to 1988. Both sides attempted to disrupt each other’s oil exports in what later became known as the “Tanker War”. Commercial tankers faced repeated attacks. AS a result, global energy supplies felt severe stress.

Today’s developments have revived memories of that period. Energy markets are sensitive to every signal from the narrow stretch of water that links the Gulf to rest of the world.