In early trade, Brent Crude rose to just over US$80 per barrel compared to the closing price of US$72.87 on Friday before easing slightly.
The price of Brent, the international benchmark for crude oil, already rose last week ahead of the strikes that began on Saturday.
At least three tankers were damaged off the Gulf coast and one seafarer was killed as Iranian retaliation for US and Israeli strikes on Iran exposed ships to collateral damage, shipping sources and officials said on Sunday.
With the resulting regional turmoil, maritime transport is under threat through the Strait of Hormuz, through which around 20 percent of global oil passes.
The key waterway is mostly but not completely closed, as some Chinese and Iranian vessels are reported to have passed through.
In such a situation, insurance costs become prohibitive, said Amena Bakr, head of Middle East and Opec+ research at analysts Kpler, predicting that the price could hit US$90.
The main shipping companies have already confirmed that they are suspending the passage of their fleets along the route.
Container shipping giant Maersk said on Sunday it was halting passage through the Suez Canal and the Strait of Hormuz for “safety” reasons. It said it would be rerouting ships around the Cape of Good Hope – the southern tip of Africa – adding thousands of miles to the journey.
“While some alternate infrastructure could be used to bypass the Strait of Hormuz, the net impact from its closure would be a loss of 8 million to 10 million bpd (barrels per day) of crude oil supply,” said Jorge Leon, an analyst with Rystad Energy, in a note on Saturday.
In theory, oil-importing countries have reserves, with OECD members required to maintain 90 days’ worth of oil stocks but prices above US$100 cannot be ruled out.
If the blockade of the Strait of Hormuz continues, “no matter how much spare capacity (in the strategic reserves) is not going to fill that gap. That gap is just too big”, said Bakr.
Another analyst at Kpler, Michelle Brouhard, described high oil prices as “the Achilles heel of Trump”. In her view, Iran is likely to look to keep crude prices high to force Trump to back down, as he promised his electorate low prices, at a time when the United States is already gearing up for mid-term elections at the end of this year.
Gas prices were also expected to soar on Monday, as Qatar is a key exporter of liquefied natural gas, heightening inflationary risks.
The rise in hydrocarbon prices is bad for the economy. The last time crude prices climbed above US$100 was at the start of the war in Ukraine.
Gas prices also soared, which played a major role in a prolonged period of rising prices.
Rising petrol prices, higher energy prices, increased shipping costs and loss of revenue for air transport could have “a harmful effect on growth”, said economist Eric Dor, from the IESEG School of Management in Paris.
“If it’s a matter of three days, it’s not serious. But if it’s over a longer period, then it will have an additional recessionary effect,” he said. (Agencies)
Edited by Cecil Wong
