The current situation surrounding Iran

Iran is pursuing a tough policy: on the one hand, the Deputy Foreign Minister claims that no signals have been sent to the US to end the conflict and that the focus is on self-defence; on the other hand, the Islamic Revolutionary Guard Corps (IRGC) is attacking tankers linked to the US, Israel or Europe, preventing them from passing through the Strait of Hormuz. For the oil market, it is crucial that the flow of crude oil through this narrow bottleneck has practically stopped – about one-fifth of global oil trade comes from there. OPEC+ has announced a slight increase in production from April, but these additional barrels are irrelevant when ships cannot sail safely.

Currently, only vessels flying the Iranian flag are navigating the waters of the Strait of Hormuz. Source: MarineTraffic

Rise in oil prices

As a result, Brent and WTI prices continue to rise and test the highs of the last two days, recovering several per cent since the Strait became effectively closed. The market is discounting a scenario of a permanent supply shock, where even increased exports from America or Africa will not compensate for the lack of supplies from the Persian Gulf. Some of the oil from Saudi Arabia can only be transported by pipeline to the Red Sea, but this route has limited capacity.

Logistical consequences

Shipping larger quantities this way causes competition for space, which rapidly increases freight rates and costs for shipowners and refineries. Combined with higher insurance premiums and geopolitical risk premiums, this creates a classic inflationary shock – not only barrels are becoming more expensive, but also the entire logistics and trade. For Europe and Asia, this means pressure on refinery margins and higher fuel prices for consumers in the coming weeks.

The market is now focused on the duration of the Strait of Hormuz blockade – the longer it lasts, the greater the chance that we will pay over USD 100 per barrel for oil. For now, there is nervousness, and further reports of drone attacks only increase the upward pressure. The situation remains dynamic and uncertain.

Brent crude oil maintains a dynamic upward trend, with the RSI at its fastest in nearly two years. The key factor determining the contract’s price remains the issue of the Strait of Hormuz. Until it remains impassable, upward momentum may continue to be observed. On the other hand, a resolution of the conflict could very quickly reverse the current movements. Source: xStation

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