Strait of oil discord - Analytics

Strait of oil discord - Analytics Strait of oil discord - Analytics
Analytics
June 23, 2025 16:36
Strait of oil discord - Analytics

Oil prices continue to rise actively, with the main driver being the escalation between Iran and Israel.

On the first day of Israel's strikes on Iran, quotations for benchmark crude oil grades - Brent and WTI - soared by more than 13%. For comparison, from the beginning of the current month until June 11, Brent was trading at $64-66 per barrel.

The very next day, the price for this grade exceeded $70 per barrel - for the first time since April of this year. At that time, the catalyst for growth was uncertainty regarding the future of negotiations on Iran's nuclear program. On June 13, after Israel's overnight strikes on Iran - the third largest oil producer in OPEC - oil prices rose by 13%, WTI by 10%. The cost of August futures for Brent jumped to $74.06 per barrel, while WTI for July reached $72.73 per barrel.

After this, the oil market, like the rest of the world, froze in anticipation of Iran's response, recalling the repeated earlier threats from Tehran officials to close the Strait of Hormuz - a narrow waterway through which 20% of all global oil supplies and up to 30% of global liquefied natural gas supplies pass daily. However, in the first days of escalation, the strait was not actually blocked. Tehran first announced the suspension of negotiations with the US on its nuclear program. After that, Iran responded to Israel with combined drone and ballistic missile strikes.

Subsequently, the topic of closing the Strait of Hormuz somewhat faded from the agenda. However, US strikes on three Iranian nuclear facilities on the night of June 22, along with the question of the Islamic Republic's withdrawal from the Nuclear Non-Proliferation Treaty (NPT), brought this issue back into focus. This is despite White House statements that the strikes were a one-time action and were only intended to force Iran to conclude a deal with the US on the nuclear issue. As a sign of the seriousness of its intentions, Iran decided to consider this topic in parliament, which voted 'in favor' of blocking the Strait of Hormuz. Now it's up to the Republic's National Security Council to make the final decision.

What makes the Strait of Hormuz so notable is that it connects the Persian Gulf and the Gulf of Oman, and this region is home to oil and gas-rich Bahrain, Iraq, Iran, Qatar, Kuwait, and Saudi Arabia. It accounts for about a third of the world's maritime oil exports and 90% of the oil produced in the Persian Gulf. Given the sensitivity of the oil market, it wasn't hard to guess what would follow the US strikes on Iran - oil prices reached their highest level since January. Brent futures rose by 1.97% to $78.53 per barrel, while WTI increased by 2.04% to $75.35. According to shipping tracking services, after the US strike on Iranian nuclear facilities, more than 50 vessels urgently left the Strait of Hormuz.

The world has divided into two camps, with one convinced that the strait will not be closed because it would harm Iran by 'killing' its own economy and the economy of its main ally - China. Incidentally, US Secretary of State Marco Rubio called Tehran's possible blockade of the strait 'suicide.' In the other camp, analysts are making forecasts and scenarios for oil prices in case Iran's threats are realized. Analysts unanimously believe this would trigger a price surge beyond $100/barrel, or even $150/barrel. Although Iraqi Foreign Minister Fuad Hussein believes that closing the Strait of Hormuz could lead to a loss of approximately 5 million barrels of oil per day from the Persian Gulf and Iraq and raise oil prices to as much as $200-$300 per barrel.

"This could lead to increased inflation in European countries and complicate the oil export process for producing countries such as Iraq," he believes.

"The current geopolitical escalation is a fundamental catalyst for the growth of oil prices," notes Sugandha Sachdeva, founder of research firm SS WealthStreet.

According to her, the price of Brent crude could rise to $100 per barrel, and its growth to $120 per barrel in the future is becoming increasingly likely. According to JPMorgan analysts, the closure of the Strait of Hormuz would lead to a 70% increase in oil prices.

"Although a complete blockage of the strategic route is unlikely, even partial measures - such as attacks on tankers, GPS jamming, or mining - can seriously disrupt oil supplies," the agency's analysts believe. If we consider only the fact that the closure of the strait will lead to an increase in oil prices, it's not difficult to guess that only oil traders and producers of 'black' gold outside the region will benefit from this scenario. Among those affected will be the major oil consumers receiving oil through the Strait of Hormuz: primarily China.

India, Japan, and South Korea are also named among the largest importers of this oil. The US imports about 700,000 barrels of crude oil and condensate per day through the strait - about 11% of their total oil imports and 3% of gasoline consumption. By the way, Türkiye, according to Transport Minister Abdulkadir Uraloglu, is already taking measures in case of the closure of the Strait of Hormuz, implementing such logistics initiatives as the Middle Corridor and the "Development Road": "2,100 km of the Development Path passes through Türkiye, in which we will invest about $24 billion. The Middle Corridor, with a length of 2,200 km, is also being strengthened, and some of its sections have already been completed," the minister noted.

The US and a number of its partners have called on Iran to refrain from blocking the strait so as not to create additional risks for the energy sector. Iran, for its part, is showing restraint so far and is not forcing the closure of the Strait of Hormuz. So now the situation with the possible blockage of the strait is developing, as the American president likes to say: "Maybe yes, maybe no."

A significant increase in oil prices could trigger new risks for the global economy and make a recession more likely this year. On the other hand, for Iran, this strait is a certain trump card that Tehran may use.

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