LONDON: Oil and natural gas surged as the United States moved to blockade the Strait of Hormuz after weekend talks between Washington and Tehran failed to reach a deal, escalating a global energy crisis that’s shaken markets.
Brent rallied as much as 9.1% to near US$104 a barrel, while European gas futures spiked almost 18% at one point.
US forces will begin implementing the blockade, which applies to all vessels entering or departing Iranian ports, the US Central Command said.
Global energy markets have been upended by the war in the Middle East, with higher prices threatening to stoke inflation while slowing economic growth.
There’s now an urgent scramble among refiners and traders around the world for immediately available crude cargoes as physical supplies tighten.
President Donald Trump told reporters that the action would be very effective, while earlier threatening to retaliate in the event of resistance by Tehran.
In addition to the blockade, the US leader and advisers were looking at resuming limited strikes, the Wall Street Journal reported.
“What it does is inject an enormous element of additional risk,” said Michael Ratney, former US ambassador to Saudi Arabia, told Bloomberg TV.
With some ships carrying oil bound for China, “is the US Navy going to blockade those, and thus set up a crisis in US-Chinese relations?” he asked.
Hormuz, which links the Persian Gulf to global markets, has been effectively closed since US and Israeli strikes on Iran began in late February.
Tehran has frustrated the White House by tightening its grip on the route, imposing fees on some vessels and keeping traffic at a fraction of pre-war levels.
Iran was still shipping crude and condensate out of the Persian Gulf in March, with China the top destination, although flows fell from a month earlier, according to preliminary tracking estimates compiled by Bloomberg.
“It strikes me that that is quite an ambitious endeavour, and it doesn’t solve the problem of disruption,” Mona Yacoubian, director of the Middle East Program at the Centre for Strategic and International Studies, said of the US blockade plan.
“It’s hard to make sense of it.”
If Iran did feel that its oil exports were threatened, it may push Houthi forces in Yemen to target transit through a chokepoint at Bab el-Mandeb.
This is at the southern entrance to the Red Sea, Yacoubian said.
The Houthis entered the war in late March, and have the capacity to disrupt shipping.
Oil flows via the Red Sea have become more important since the war erupted as Saudi Arabia boosted pipeline flows across the country to the port of Yanbu.
On Sunday, Riyadh said it had restored full capacity through the East-West pipeline, as well as output from the Manifa field after Iranian strikes.
“The market got ahead of itself on de-escalation,” said Haris Khurshid, chief investment officer at Karobaar Capital LP in Chicago, adding that the US blockade threatens slower shipping, delayed cargoes and costlier insurance.
“That’s what actually tightens the market and shows up in the price.”
Producer group, the Organisation of the Petroleum Exporting Countries and its allies (Opec+), which has already warned that damage to Middle East energy assets will have a prolonged impact on supply even after the war ends, was due to publish its monthly market report yesterday.
It was to potentially offer fresh insight into the extent of the disruption.
The breakdown in the United States and Iranian talks represents a significant setback after a fragile ceasefire was agreed last week. — Bloomberg
