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Tanker traffic through the Strait of Hormuz has partially stopped, causing sharp increases in oil prices as market participants anticipate potential closures due to the U.S.-Israeli military operation in Iran. Over the weekend, oil saw its largest gains in four years. Brent crude rose above $82 per barrel at the start of trading on Monday, March 2, climbing about 13% amid fears of supply disruptions, Bloomberg reports.
Analysts warn that prices could rise further if the military operation continues, potentially reaching $120 per barrel. Around 20% of global oil supplies pass through the Strait of Hormuz, meaning that even with increased OPEC production in April, additional volumes and spare capacity would remain unavailable if the waterway stays closed. Shipowners and traders have also voluntarily paused shipments due to the escalating conflict.
“In our base case, we expect Brent crude to trade between $80 and $90 per barrel over the next week,” analysts from Citigroup, including Max Layton, wrote in a note released before trading on March 2. JPMorgan Chase analysts also noted that if the strait remains closed for 25 days, major Middle Eastern oil producers may have to temporarily halt production as storage facilities reach capacity.
Russia stands to benefit from the price spike, as higher prices and increased purchases by China and India could boost its revenues. Market watchers hope the U.S. military operation concludes quickly so that oil prices can ease.
Meanwhile, Iran officially confirmed the death of Supreme Leader Ali Khamenei. A temporary leadership council has been formed, and the Islamic Revolutionary Guard Corps announced the start of what it called Iran’s “most destructive offensive operation in history.” Iranian official Pezeshkian vowed retaliation for Khamenei’s death.
