U.S. joins Iran-Israel war stoking worries about oil volatility

The oil markets enter a new phase of uncertainty after the United States joined the war between Iran and Israel, with experts warning three-digit prices.

Investors are taking care of Tehran’s reaction after the United States strikes on its nuclear installations, the Iranian Foreign Minister warning his country reserved “all options” to defend his sovereignty.

Oil term contracts have increased by more than 2% since the early hours of Asia. US WTI CRODE increased by more than 2% to $ 75.22 per barrel, while Global Benchmark Brent increased by almost 2% to $ 78.53 per barrel.

“There is a real risk that the market will suffer unprecedented disruption of the offer in the coming weeks, of a much more serious nature than the shock of the price of oil in 2022 following the Ukraine war,” said Saul Kavonic, the main energy analyst of the MST Marquee.

While the reaction of the market after the strikes of the United States was less aggressive, Compared to just over a week ago when Israel launched air strikes against IranIndustry observers believe that the latest developments inaugurate a new era of volatility for oil markets, in particular pending potential Iranian countermeasures.

The threats of blocking the Strait of Hormuz, after the Iranian Parliament approved the fence in accordance with the state media, added to the nervousness of the market.

The Strait, which connects the Persian Gulf to the Oman Sea, is a critical artery for world oil trade with approximately 20 million barrels of oil and petroleum products that cross it per day. This represents almost a fifth of world oil expeditions.

If Iran closes the Strait of Hormuz, Western forces “will enter the fray directly” and will try to reopen it, said Kavonic to CNBC, adding that oil prices could approach $ 100 per barrel and retest the summits observed in 2022, if the closure goes beyond a few weeks.

“Even a degree of harassment of passage through the Strait, unless a complete closure, could still see a serious intensity of oil prices,” said the main energy analyst.

Kavonic’s point of view is taken up by other industry experts.

The United States and the Allied soldiers would end up reopening the strait, but if Iran employed all its military means, the conflict could “last longer than the last two Gulf wars,” said Bob McNally, president of Rapidan Energy Group. And if Iran decided to attack the production or energy flows of the Gulf, it has the capacity to disrupt oil and LNG shipping, which leads to a sharp increase in prices.

“A prolonged closure or destruction of the keys energy infrastructure could propel crude prices to more than $ 100,” he said.

THE CBOE crude oil volatility indexWho measures the expectation of the 30 -day volatility market in crude oil prices, was in March 2022 at the levels it hit shortly after Russia invaded Ukraine.

Although there has been a certain level of uncertainty with regard to the way in which developments in the Middle East could be played for oil supply, Andy Lipow by Lipow Associates noted that current developments have a different weight.

“This time feels different, given the missile dam that has been dismissed for more than a week and now the direct involvement of the United States,” he said, adding $ 100 per barrel should export by the Hormuz Strait.

While an attempt to block the Hormuz navigable path between Iran and Oman could have deep consequences for the broader economy, threats to blocking the strait have been mainly rhetorical, with experts say that it is physically impossible to do it.

“So the image is a bit mixed, and I think traders will be wrong with caution, and not panic unless there is more real evidence to do,” said Vandana Hari, founder and CEO of Vanda Insights.

Iran in 2018 threatened to close the Hormuz Strait in the midst of increased tensions after the United States left the nuclear agreement and restored sanctions. Similar threats were issued in 2011 and 2012, when senior Iranian officials – including the time – lived President Mohammad -Reza Rahimi – warned of a possible closure While Western nations have imposed more sanctions on Iranian oil exports compared to its nuclear activities.

In addition, it should be noted that Iranian energy infrastructure has not been a target so far, even with recent conflagrations, said Rebecca Babin, main energy trader at CIBC Private Wealth.

“It seems that the two parties have an incentive to keep the oil out of the fire line, at least for the moment,” she said.