Oil Price Surge Predicted as Iran Threatens Strait of Hormuz Closure

Global oil markets face significant volatility as Iran’s parliamentary vote to close the Strait of Hormuz threatens to disrupt one of the world’s most crucial oil transport routes. Market analysts predict crude prices could surge beyond $100 per barrel if Tehran follows through with its threat to block the strategic waterway.

The strait, measuring just 21 miles at its narrowest point, currently facilitates approximately one-fifth of global oil supplies. The Iranian parliament’s decision comes as a direct response to recent American military actions targeting Iranian nuclear facilities. The ultimate decision now rests with Iran’s Supreme National Security Council.

Kallum Pickering, chief economist at Peel Hunt, warns that Iranian interference in the strait would trigger “a significant global supply and price shock, depressing global GDP and pushing up inflation.” Brent crude has already witnessed a $10 per barrel increase to $77 since Israel’s military operations began on 13 June.

Market specialists anticipate an immediate price response when trading resumes, with weekend betting markets suggesting a further $4 to $5 increase, potentially pushing prices above $80 per barrel for the first time since January. David Fyfe, chief economist at Argus Media, projects even more dramatic outcomes, suggesting prices could reach between $100 and $150 per barrel if the strait closes.

Historical precedents highlight the potential severity of such disruptions. The 1973-74 Arab oil embargo saw prices quadruple from $3 to $12 per barrel, while the 1979 Iranian revolution and subsequent Iran-Iraq war doubled prices from $14 to $35. More recently, Russia’s Ukraine invasion drove prices to $139 per barrel in 2022.

Despite these concerns, many analysts remain sceptical about Iran’s willingness to implement such measures. China’s heavy dependence on the strait for trade could serve as a deterrent, as blocking the waterway would risk antagonising both the United States and China, Iran’s largest oil customer. The strategic importance of maintaining good relations with Qatar, a friendly nation dependent on the strait for LNG exports, may also influence Iran’s decision-making process.