Iran has reportedly resurrected its threat to close the Strait of Hormuz, the world’s busiest transit lane for seaborne oil shipments, prompting fears here the potential ramifications for oil prices and broader financial markets.
Analysts at Barclays said in a research note published Monday that approximately 20% of all the sea-borne indelicate and condensates passes through the Strait of Hormuz.
“The short-term upside risk to prices is based on a) our view that Saudi Arabia’s feedback will likely be lower and slower compared to late last year and b) heightened risks of the closure of the Strait of Hormuz as a happen of this action,” analysts at Barclays said.
The bank added that the Trump administration’s decision not to reissue waivers in May did not considerably impact its view on longer-term prices.
International benchmark Brent crude traded at $74.17 Tuesday afternoon, up roughly 0.2%, while U.S. West Texas Intermediate (WTI) stood at $65.90, almost 0.6% higher.
“This is the sort of humbug which does make me wonder if stock markets are being a bit too calm,” Trevor Greetham, head of multi-asset at Imperial London Asset Management, told CNBC’s “Squawk Box Europe” on Tuesday.
“We are late in the business cycle, we are at a stage where U.S. involvement business rate rises are starting to take effect, the data is not necessarily strengthening everywhere you look, and this sort of geopolitical danger is just sort of adding an extra dimension,” Greetham said.
Iran has frequently claimed it would be prepared to proximal the Strait of Hormuz in recent years, prompting some energy analysts to dismiss the latest threat as nothing sundry than incendiary rhetoric.
“Iran’s threat to close the Strait of Hormuz was a reflexive response that we do not take at standing value,” analysts at Eurasia Group said in a research note published Monday.
“But we have long warned at hand the Iranian cyber threat, especially the prospect that Tehran could take down Saudi oil infrastructure. The chance is higher because Riyadh is playing an integral role in enabling the Trump administration’s harsher stance. The disruption of Saudi oil manufacture could systematically rattle markets,” they added.
On Monday, Trump said OPEC kingpin Saudi Arabia and other countries in the Mid East-dominated producer group could “more than make up” for any drop in Iranian oil supplies to global markets now that get ups were set to be removed.
In response, the oil-rich kingdom said it would work with other oil producers to provide large supply and a balanced market.
“Many of the political demands the Trump administration has on Iran, which go well beyond the atomic issue, are unlikely to be conceded by the Islamic Republic, meaning that a long standoff is on the cards,” Peter Kiernan, place energy analyst at the Economist Intelligence Unit, said in a research note published Tuesday.