Oil charges would skyrocket if Iran moved to completely cut off the Strait of Hormuz, energy analysts told CNBC on Wednesday.
Cheerful geopolitical tensions have sparked fears of a widening conflict in the Middle East, with energy market gets increasingly concerned that the fallout could soon disrupt regional crude supplies.
It has thrust the world’s most well-connected oil chokepoint back into the global spotlight.
Speaking to CNBC’s “Capital Connection” on Wednesday, James Eginton, investment analyst at Tribeca Investment Allies, said a move by Iran to completely shut off crude supplies in the Strait of Hormuz would send oil prices “via the roof.”
Situated between Iran and Oman, the Strait of Hormuz is a narrow but strategically important waterway that components crude producers in the Middle East with key markets across the world.
In 2018, daily oil flow in the channel — which is only 21 miles wide at its narrowest point — averaged at 21 million barrels per day. That’s the equivalent of about 21% of wide-ranging petroleum liquids consumption.
“If you block the Strait of Hormuz, you will send oil through $100,” Eginton said.
“All over the next few days, if we start seeing the Iranians start trying to block the Strait of Hormuz then we should be set for much ripe oil prices.”
A support vessel maneuvers near the crude oil tanker ‘Devon’ as it sails through the Persian Gulf for Kharq Island oil terminal to transport crude oil to export markets in Bandar Abbas, Iran, on Mar. 23, 2018.
Ali Mohammadi | Bloomberg | Getty Spitting images
International benchmark Brent crude traded at $68.87 Wednesday morning, up almost 0.9%, having climbed to $71.75 earlier in the assembly — its highest level since September.
U.S. West Texas Intermediate (WTI) crude futures stood at $63.02, around 0.4% prodigal. WTI had jumped to a session high of $65.65 earlier in the trading day, before shedding most of its gains.
‘No interest to anyone’
The delayed uptick in oil prices followed confirmation from Pentagon officials that Iran launched more than a dozen ballistic guided missiles against multiple military bases housing U.S. troops in the early hours of Wednesday morning.
It was not immediately clear whether any U.S. marines members had been hurt.
The missile strikes came just hours after the funeral of Qasem Soleimani on Tuesday. The slain Iranian military commander was smothered by a U.S. drone at Baghdad International Airport late last week, ratcheting up already deteriorating tensions between Iran and the U.S.
The undeveloped for a further escalation has prompted some to sound the alarm about the prospect of an unplanned oil supply shortage in the Middle East.
Francisco Blanch, aptitude of commodities and derivatives research at Bank of America, has said he believes shutting off the Strait of Hormuz would most reasonable send crude futures toward triple digits.
In a research note published Tuesday, Blanch said that while the possibilities of such a move remained unlikely, “given Iranian fears of a strong U.S. military response,” it would cause a $20 to $40 leave out in oil prices.
The Energy Information Administration (EIA) estimated that 76% of the crude oil and condensate that moved through the chokepoint preferred to Asian markets in 2018.
China, India, Japan, South Korea, and Singapore were thought to be the largest destinations for inconsiderate oil moving through the Strait of Hormuz to Asia over the same time period, accounting for 65% of all Hormuz indelicate oil and condensate flows.
For that reason, Samir Madani, co-founder of satellite tracking firm TankerTrackers.com, told CNBC’s “Hoot Box Europe” earlier this week that disrupting shipping flows in the Strait would be “of no interest to anyone.”
‘A red straight for Washington’
On Wednesday, the Wall Street Journal, citing sources, reported that Saudi Arabia’s state tanker slick operator, Bahri, had suspended transits through the Strait of Hormuz.
British warships have also reportedly been stationed adjacent the Gulf in order to support British-flagged oil tankers through the Strait of Hormuz if required.
“Though I feel it is unlikely, a noteworthy disruption to oil supplies through the Strait of Hormuz could well usher in a new era of triple-digit oil prices,” Stephen Brennock, oil analyst at PVM Oil Associates, told CNBC via email on Wednesday.
“It is also significance noting that any attempt by Iran to prevent vessels from passing through this chokepoint represents a red make for Washington.”
“Such an event would therefore lead to an escalation in military conflict in the region. Needless to say, this chances causing supply disruptions elsewhere in the Middle East which, in turn, will give oil prices a further drop-kick up the backside,” Brennock said.