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Oil markets react to Iran's strikes in key shipping lane
Brent crude prices climbed 10% to $82 a barrel on Monday before retreating slightly after Iran targeted vessels near the Strait of Hormuz, a critical route for global oil and gas shipments.
Shipping disruptions halt traffic in vital waterway
Iran issued warnings to ships avoiding the Strait of Hormuz, through which roughly one-fifth of the world's oil and gas flows. The UK Maritime Trade Operations Centre (UKMTO) confirmed two vessels were hit by strikes, while a third reported an explosion nearby. A fourth incident led to crew evacuations, though the cause remains unclear.
At least 150 tankers have anchored outside the strait, with only a few Iranian and Chinese ships passing through. Homayoun Falakshahi of Kpler noted that insurance costs have surged, effectively closing the route. "The risks are too high," he said.
Market volatility and economic risks
After peaking at $82, Brent crude settled at $79, while US oil rose 7.6% to $72.20. Analysts attributed the pullback to initial assessments that oil infrastructure wasn't directly targeted. Saul Kavonic of MST Marquee told the BBC, "The market isn't panicking," but warned that prolonged disruptions could push prices beyond $100.
"The jump in prices will feed through almost immediately because oil traders are very much following the news too."
Robin Mills, CEO, Qamar Energy
Edmund King of the AA cautioned that the conflict could disrupt global fuel distribution, driving up petrol prices. Subitha Subramaniam of Sarasin & Partners added that sustained high oil costs could reignite inflation, affecting food, agriculture, and industrial commodities.
OPEC+ response and geopolitical tensions
On Sunday, OPEC+ agreed to increase output by 206,000 barrels per day to mitigate price spikes, though experts doubt its impact. Iran's Revolutionary Guards claimed responsibility for striking three UK and US tankers, though neither government has confirmed the reports.
Maersk announced it would reroute ships around Africa's Cape of Good Hope, avoiding the Suez Canal and Bab el-Mandeb Strait. The UKMTO advised vessels to "transit with caution" amid multiple security incidents in the Arabian Gulf and Gulf of Oman.
Outlook: Prices hinge on strait's reopening
Analysts say oil prices will stabilize if traffic resumes, but a prolonged closure could trigger a broader crisis. Falakshahi warned that while US protection efforts might prevent a spike, extended blockades could send prices "much, much higher."
The Bank of England may delay interest rate cuts if inflation pressures persist, Subramaniam suggested, noting the conflict's timeline remains uncertain.
